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Markets back on track after jittery first quarter Global Market Perspective | Q2 2016 [Type text] Global Market Perspective, Second Quarter 2016 Global Market Perspective Contents Markets Back on Track after Jittery First Quarter .......................................................................................................... 3 Global Economy ................................................................................................................................................................ 6 Real Estate Capital Markets ............................................................................................................................................. 8 Investment Volumes............................................................................................................................................................ 8 Capital Values and Yields ................................................................................................................................................. 13 Corporate Occupiers ...................................................................................................................................................... 14 Global Real Estate Health Monitor................................................................................................................................. 16 Office Markets ................................................................................................................................................................. 17 Office Demand Dynamics ................................................................................................................................................. 17 Office Supply Trends......................................................................................................................................................... 20 Office Rental Trends ......................................................................................................................................................... 24 Retail Markets .................................................................................................................................................................. 27 Industrial Warehousing Markets .................................................................................................................................... 29 Hotel Markets................................................................................................................................................................... 30 Residential Markets ........................................................................................................................................................ 33 Key Investment Transactions in Q1 2016 ..................................................................................................................... 35 Illustrative Office Occupational Transactions in Q1 2016 ........................................................................................... 39 COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 2 Global Market Perspective, Second Quarter 2016 Markets Back on Track after Jittery First Quarter Occupational and investment markets rebounding from cautious start to 2016 The world’s dominant commercial real estate markets appear to be back on track following a jittery start to the year. Stock market volatility, heightened global economic uncertainty and concerns over a China slowdown certainly made investors and corporate occupiers think more carefully in Q1; but, by and large, decisions were being delayed rather than postponed. Recovery in investor sentiment since the mid-February low has been swift and there remains a huge amount of capital targeting real estate assets. Meanwhile leasing markets held up reasonably well during the quarter, and with sentiment improving, corporate activity is likely to ramp up during the course of the year. Direct Commercial Real Estate Investment, 2006-2016 US$ billions 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 (F) -5% 800 700 600 500 400 -5-0% -10% 300 -5-10% 200 100 0 Americas xx% EMEA Asia Pacific Global Projected Change, 2015-2016 Source: JLL, May 2016 Heightened volatility impacts investor activity The heightened levels of volatility and risk aversion experienced in the first 4-5 weeks of 2016 combined with what is usually the quietest quarter of the year to make the results for Q1 2016 look quite weak, with volumes down 14% yearon-year. Nonetheless, recovery has been particularly rapid; equity markets are back to November 2015 levels and credit spreads have narrowed again. A sizeable amount of capital remains unspent across all investor types and we expect this to be deployed as we move through the year. With political uncertainty set to continue, from Chinese regulators to UK referendums and U.S. elections, JLL anticipates full-year 2016 activity to be broadly in line with 2015, with a central scenario indicating that volumes could be about 5% lower. Global office leasing volumes hold up despite uncertainty Momentum in the leasing markets slowed moderately in Q1 2016 as occupiers carefully reconsidered relocation and expansionary plans, with leasing volumes marginally lower (-1%) on a year-on-year basis. Volumes in both Europe and Asia Pacific held up well during Q1 2016, increasing by 14% and 7% respectively year-on-year. Leasing volumes in the United States fell by 10% year-on-year to the lowest level since the Global Financial Crisis as concerns over the economy’s stability grew. COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 3 Global Market Perspective, Second Quarter 2016 Technology and financial services continue to shape demand across all three global regions. Technology hotbeds from Silicon Valley and Seattle, to Stockholm, Berlin and Bengaluru have registered the strongest corporate demand. Meanwhile, e-commerce firms have been active in the office leasing markets in several emerging economies such as India, China and Indonesia. In the context of a weaker-than-expected first quarter, we have revised down our global projections for the full-year 2016 and now forecast leasing volumes to broadly match 2015 levels, with some upside potential of up to 5%. Asia Pacific is projected to outperform the other regions, with volumes growing by around 10%-15% in 2016. millions sq m Global Office Demand – Gross Leasing Trends, 2012-2016 42 41 40 Projection 39 38 37 36 35 2012 2013 2014 2015 2016 24 markets in Europe; 44 markets in the U.S; select markets in Asia Pacific Source: JLL, May 2016 Global vacancy rates edge upwards, but rental growth continues at a healthy clip The global office vacancy rate has edged up slightly for the first time since 2012, rising by 10 basis points to 12.2%. The vacancy rate is expected to hover at around 12% for the remainder of the year, with falls in the U.S. rate balanced by a modest rise in vacancy in Asia Pacific. Vacancy is anticipated to be broadly stable in Europe. Despite a slightly more subdued picture for global office demand during the first quarter, supply shortages and limited new deliveries have kept the leasing environment highly competitive in many of the world’s leading office markets, with prime office rents across 26 major markets increasing by a healthy 4.4% year-on-year in Q1 2016. A pace of about 3%4% rental growth is likely to be maintained during 2016. Consumer confidence fuels retail sales growth Strong consumer confidence and resilient retail sales growth are contributing to healthy demand in the U.S., Europe and selectively in Asia Pacific. Demand has exceeded supply in the past four quarters in the U.S., with several standout markets witnessing conditions typical of a peaking market. Meanwhile, Dublin and UK markets registered the strongest rental growth over Q1 in Europe, while increases were also seen in Spain’s leading cities. In Asia Pacific the demand picture remains mixed, with robust retailer demand in China’s Tier 1 markets and in Tokyo’s prime shopping areas, although rental levels have been stable in most regional markets over the quarter. COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 4 Global Market Perspective, Second Quarter 2016 Realignment of logistics networks boosts demand Supply chain redesigns to support omni-channel retail concepts and to further shorten customer delivery times are continuing to boost global warehousing demand. In the U.S., absorption is still outpacing new supply, with the national vacancy rate at a 15-year low. Similarly, ongoing vigorous occupier demand in Europe is anticipated to result in take-up volumes remaining at 2015’s record levels. In Asia Pacific, third-party logistics providers, e-commerce retailers and manufacturers are bolstering demand and rental growth in China and Tokyo. Global hotel investment subdued after stellar 2015 Global hotel transactions activity was subdued during Q1 2016 compared to the stellar levels seen in early 2015, with deal volumes declining by 58% year-on-year. With investor sentiment showing renewed signs of strengthening, transactions activity in Q2 is expected to pick up and the second half of 2016 stands to be very busy. Overall, volumes will be less frothy in 2016 but core investors will feel more comfortable given that some transactions and valuations in 2015 had moved ahead of market fundamentals. U.S. rental apartments see surge in rental growth Rental growth accelerated meaningfully in the U.S. multifamily market in Q1 to its highest pace this cycle despite a modest increase in the national vacancy rate on the back of an expanding development pipeline. Institutional investment markets started the year on a quiet note in Europe, with Germany calmer after a record year for transaction volumes in 2015 and the UK market impacted by uncertainty around Brexit and government policy, although there was an increase in sales activity in the Netherlands. In Asia, an accommodative policy stance provided support for strong sales activity in China’s Tier 1 markets, while sales volumes also grew in Singapore. COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 5 Global Market Perspective, Second Quarter 2016 Global Economy Conditions stabilise in mid-Q1, though downside concerns persist Markets were extremely volatile at the start of the year as concerns about another world economic slowdown mounted. Steep falls in share prices seemed to be signalling impending recession, but a solid rally has been seen since midFebruary fuelled by speculation about further monetary stimulus. The freefall in oil prices has also been arrested, though with supply still plentiful, the price has failed to move consistently above US$40pb. With market turbulence easing and prices back to the levels of last autumn again, attention is turning to the real economic effects. Asia was a major concern last quarter, most notably the impact of China’s slowdown. But Japan aside, downgrades to growth have been modest so far. China’s progress remains critical for both regional and global fortunes, so it is encouraging that the economy is stabilising according to the latest sentiment indicators. This suggests that recent government stimulus may be having an effect, although this has also rekindled worries about the property market. By contrast, the U.S. forecast for the current year has been fairly sharply downgraded after a weak Q4 2015 and a sluggish start to 2016. The data has improved more recently and most economists project a strong through-year performance, but it means that growth in 2016 will now struggle even to match the mediocre performance of the last two years. Europe has been the laggard in the current recovery, and anxiety about its fragility in the face of external developments has been supported by forecast changes. In the Eurozone, both France and Germany have been downgraded thanks largely to poor Q4 2015 net trade. The UK has also been edged lower for similar economic reasons, and its external worries are being increasingly compounded by political risks. The announcement of a June date for the UK’s EU referendum has at least removed uncertainty about timing. Polling remains finely balanced, but sharp movements in sterling suggest there is still considerable market unease about the impact of a potential Brexit. GDP Projections for 2016 in Major Economies – Recent Movements Australia China France Germany India Japan UK U.S. January 2.8 6.3 1.5 2.2 7.4 1.1 2.4 2.6 April (Latest) 2.8 6.5 1.4 1.7 7.4 0.5 2.1 2.0 Change (bps) 0 +20 -10 -50 0 -60 -30 -60 Source: Oxford Economics, April 2016 Central Banks search for new stimulus Residual concerns about inflation have disappeared, with the renewed global instability replaced by apprehension about what policymakers can do to prevent another slowdown. Seven years of special monetary measures have brought only a patchy global recovery, and with interest rates still close to zero in the developed world, conventional options are now limited. Although the consensus is that the U.S. will raise interest rates again later this year, the Fed is not rushing to follow last year’s move. Elsewhere, rate rises look further away than ever with Central Banks pondering new methods to boost activity. One radical remedy suggested for the more fragile economies is negative interest rates. These are a reality in Japan – now two decades into a low-growth deflationary trough - while the ECB also pushed its deposit rates further into negative territory during March as well as ramping up its QE programme. Amid increased concern about the recovery, a flight from risk has sent bond markets back to historic lows, with 10-year bund rates edging close to zero again. The monetary environment is an essential component of the real estate outlook. Ultra-low rates further extend the broad benefits for higher yielding assets and raise the potential of yield-led capital COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 6 Global Market Perspective, Second Quarter 2016 growth, if investors feel the change will last. But, in the short term at least, the uncertain macroeconomic consequences and concerns about the implications for leasing demand are likely to outweigh these benefits. Global demand lift-off postponed (again) Since our last review, expectations for the current year have been downgraded, largely owing to a softening in the outlook for the developed world. These economies had been steadily recovering, but progress is now forecast to slow in 2016, reinforcing the weakness already projected for the emerging markets. As a result, global GDP is now anticipated to only match last year’s outturn and it is not until 2017-2018 before the upward momentum resumes. This would mean that the global economy has been flat-lining at slightly below trend activity rates since 2011. Asia Pacific is likely to maintain its position as the most dynamic region globally. Active policy is expected to allow a soft landing in China, though the deceleration will take growth rates to 6.2% by next year, their lowest since 1990. Meanwhile, India is predicted to remain the fastest-growing Asian market, provided there is no slackening of reform and modernisation of the economy. In contrast, Japan has been further hit by slowing exports and weak domestic demand. Hopes that further monetary stimulus would spark an upturn in Japan are fading, leaving growth forecasts languishing below 1% for the next two years. After a run of poor data around the turn of this year, recent U.S. numbers have improved, but not enough to reverse a slide in prospects for 2016. Weakness in the country’s export sectors and the impact of a tightening monetary stance are seen as the main headwinds, offsetting improvements from job creation and income growth. A gradual pickup through the year is projected to deliver GDP growth of 2%, which remains below par by U.S. historical standards, but in line with other developed economies. The encouraging European recovery is expected to continue, but at a slower rate than previously expected. In the Eurozone core, growth remains modest, but domestic demand is forecast to continue to edge higher this year, with Germany and France reviving. Outside the Eurozone, prospects have generally been more robust. But the UK economy had a slightly disappointing 2015 and the EU vote is casting a cloud over near-term prospects. Oxford Economics’ forecasts assume that the UK stays in and any economic disruption is both mild and short-lived. This is not a certainty, however, and the concern is that a vote for Brexit could trigger a significant negative shock to the European economy at a critical moment. Global Outlook, GDP Change, 2015-2017 2015 2016 2017 Global 3.0 3.0 3.5 Asia Pacific 5.3 5.3 5.2 Australia 2.5 2.8 2.9 China 6.9 6.5 6.2 India 7.3 7.4 7.2 Japan 0.5 0.5 0.3 1.5 1.0 2.2 2.4 2.0 2.4 MENA 2.0 2.4 2.9 Europe 2.1 2.0 2.1 France 1.2 1.4 1.7 Germany 1.5 1.7 1.9 UK 2.3 2.1 2.3 Americas U.S. Source: Oxford Economics, April 2016 COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 7 Global Market Perspective, Second Quarter 2016 Real Estate Capital Markets Investment Volumes Quarter of two halves gets 2016 off to a slow start It was inevitable that the marked increase in capital markets volatility we saw at the beginning of the year would impact transactional volumes, as it had done at the end of 2015. However, the speed of decline has accelerated since Q4 2015 when year-on-year volumes were 8% lower. In Q1 2016, global activity totalled US$133 billion, 14% lower than a year ago and the weakest start to a year since 2013. However, we should remember that Q1 2015 was the strongest start to a year in this cycle. The slowdown is global with all regions lower and currency fluctuations have lessened. U.S. activity takes a breath, but sentiment remains positive Regional volumes in the Americas were down 16% year-on-year at US$61 billion in the first quarter with the U.S. mirroring this fall-off in activity. CMBS spreads and swaps rates peaked in mid-February but have since declined, encouraging activity and a more positive sentiment in the second half of the quarter. Elsewhere in the region Canadian volumes were more or less flat but activity in Latin America was exceptionally weak at just US$210 million across the markets we cover. Politics will haunt Europe for the first half of 2016 It is perhaps a surprise that European volumes have dropped by just 15% year-on-year to US$48 billion in the first quarter, given the tepid economic recovery and political issues hanging over the continent. The UK and Spain are in the eye of the storm politically at present, and investment activity has reflected this nervousness with volumes down 34% and 28% respectively. French volumes were also down by 24%, whereas Germany performed better with a fall of just 8%. There were other bright spots though, with volumes rising in the Nordics, Benelux and the CEE. Mixed picture in Asia Pacific as biggest markets move in opposite directions Asia Pacific volumes for the first quarter were 5% lower on 12 months ago at US$24 billion. Activity was quite divergent across the region; Australia, China and Hong Kong were higher than a year ago, while Japan was 26% lower. Activity in South Korea bounced back from Q1 2015, whereas Singapore had one of its weakest quarters on record at just short of US$700 million. Most of the region’s emerging markets registered lower volumes. In line with 2015 is probably the best we can hope for in 2016 The heightened levels of volatility and risk aversion experienced in the first 4-5 weeks of 2016 combined with what is always the quietest quarter of the year to make the results for Q1 2016 look quite weak. Nonetheless, recovery has been particularly rapid; equity markets are back to November 2015 levels and credit spreads have narrowed again. A sizeable amount of capital remains unspent across all investor types and we expect this to be deployed as we move through the year. Politics looks set to form the major backdrop in 2016 from Chinese regulators to UK referendums and U.S. elections; their impact on real estate is difficult to predict especially if the outcomes remain unclear. Uncertainty usually results in a slowing of market activity, which we are already witnessing in the UK and with Chinese outbound activity. However, politics also has the potential to spur activity and, at this point, we expect 2016 activity to be broadly in line with 2015, with a central scenario indicating that volumes could be about 5% lower. COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 8 Global Market Perspective, Second Quarter 2016 Direct Commercial Real Estate Investment – Regional Volumes, 2014-2016 US$ Billions Americas EMEA Asia Pacific TOTAL Q4 15 85 90 36 211 Q1 16 61 48 24 133 % change Q4 15-Q1 16 -28% -47% -34% -37% Q1 15 73 57 25 154 % change Q1 15-Q1 16 -16% -15% -5% -14% 2014 302 279 131 711 2015 314 267 123 704 % change 2014-2015 4% -4% -6% -1% 2015 293.7 94.1 34.0 50.6 27.8 21.4 12.0 27.7 11.1 14.8 8.0 8.2 9.7 4.6 11.3 8.1 3.8 2.8 % change 2014-2015 9% -12% -22% 9% -16% -20% 66% 44% -25% -22% -26% 16% -1% 56% 84% -15% 14% 44% Source: JLL, May 2016 Direct Commercial Real Estate Investment – Largest Markets, 2014-2016 $US Billions U.S. UK Japan Germany France Australia Hong Kong China Sweden Canada South Korea Italy Spain Finland Norway Netherlands Denmark Russia Q4 15 77.8 27.6 5.8 15.4 11.1 6.5 4.5 10.5 3.4 4.7 2.3 2.5 2.4 1.8 6.2 3.6 0.5 1.0 Q1 16 58.5 15.4 9.6 8.5 3.7 3.3 2.9 2.8 2.7 2.6 2.3 2.2 1.9 1.7 1.5 1.5 1.3 1.3 % change Q4 15-Q1 16 -25% -44% 65% -45% -67% -49% -36% -73% -22% -44% -1% -11% -20% -5% -75% -59% 151% 28% Q1 15 69.5 23.3 12.9 9.3 4.9 2.5 1.0 2.6 1.8 2.6 0.7 2.3 2.7 0.3 1.9 0.7 1.5 0.4 % change Q1 15-Q1 16 -16% -34% -26% -8% -24% 32% 186% 10% 47% 1% 207% -3% -28% 491% -17% 117% -13% 209% 2014 269.1 106.6 43.4 46.3 33.1 26.8 7.2 19.2 14.8 19.0 10.8 7.0 9.8 2.9 6.2 9.5 3.3 1.9 Source: JLL, May 2016 REGIONS IN FOCUS Transactions momentum slips in Americas, but sentiment remains positive Amidst the global financial market turmoil and generally heightened investor caution over the first couple of months of 2016, first quarter volumes for the Americas were down on a year-on-year basis, declining by 16% to US$61 billion. The decrease was nearly identical for the U.S. with a 16% fall to US$58 billion. Although regional volumes have declined year-on-year, this compares to strong activity in Q1 2015 which saw the greatest Q1 volume to-date in the cycle. With global financial markets having already largely recovered, impressive pools of equity from institutional, private equity fund and overseas capital seeking placement in the asset class are anticipated to keep transaction values robust and pricing high. In addition, property income yield spreads over benchmark ‘risk-free’ Treasury yields are now even more attractive than prior to the volatile start to the year, as a relative shortage of such ‘safe assets’ globally has driven longterm U.S. interest rates downwards. This should provide a further boost to investor demand for property and we now expect total full-year 2016 volumes for the Americas to be just shy of the record mark established in 2015. COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 9 Global Market Perspective, Second Quarter 2016 Robust capital inflows to U.S. cities Following a very strong 2015, U.S. cities continued to dominate the top global investment destinations in Q1 2016. New York took the premier position with volumes of US$9.9 billion, although this is down 24% on the same period a year earlier. U.S. secondary markets also generated significant activity, with Denver, Philadelphia and San Diego all registering growth in transaction volumes. Los Angeles, which saw activity increase by 54% on Q1 2015, and London made up the top three global destinations with volumes of US$6.1 billion and US$5.8 billion respectively. Direct Commercial Real Estate Investment, Top 20 Cities, Q1 2016 New York Los Angeles London Washington DC Hong Kong Tokyo Seoul Denver Paris Boston Seattle Philadelphia Chicago Stockholm Toronto Sydney Shanghai San Diego Chiba Oakland Americas EMEA Asia Pacific US$ billions 0 2 4 6 8 10 Source: JLL, May 2016 Investment in EMEA takes a pause after a strong 2015 EMEA investment volumes in Q1 2016 slipped to US$48 billion, representing a 15% fall on Q1 2015 in US$ terms and a 47% fall on Q4 2015. It is worth noting that the close to 50% decline in quarter-on-quarter volumes across the region comes off the back of very strong investment flows for the final quarter of 2015 of over US$90 billion. Nonetheless, it is fair to say that the volumes do reflect a somewhat more cautious sentiment in the market, driven by volatile global equity markets at the start of the year, concerns over a slowdown in China and the reciprocal impact on European demand, combined with the looming question of the UK’s continued role in Europe. UK lags, though France and Germany also slip All of the top three European markets saw weaker volumes, with the year-on-year decline in the UK of 34% to US$15.4 billion being the largest of the group. Clearly the question of Brexit has been a major sentiment driver, though London, as a centre for global trade, has also imported a degree of uncertainty from the apparent slowdown in Chinese demand. Germany saw volumes slip by just 8% to US$8.5 billion, while France, which had a particularly strong Q4 2015, recorded volumes of US$3.7 billion, which reflects a 24% drop on Q1 2015. COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 10 Global Market Perspective, Second Quarter 2016 Nordics and Benelux record solid growth, while Southern Europe declines The Nordics registered a pick-up in volumes over the quarter, supported by particularly strong activity in Finland which was up almost 500% against the same period last year with US$1.7 billion of investment transactions. Sweden, which saw US$2.7 billion of investment activity, recorded year-on-year volume growth of 47%. In the Benelux countries, Q1 volumes were up 27% year-on-year, though this was largely down to a very strong quarter in the Netherlands where volumes rose by 117% to US$1.5 billion. Meanwhile, Southern Europe witnessed a 5% decrease across the region compared to the same quarter last year. Spain, which comprises one-third of the sub-region’s volumes, led the decline with a 28% year-on-year fall. Intra-regional buyers increasingly active within the Asia Pacific region Investment volumes across Asia Pacific started the year on a slightly more subdued note, with Q1 2016 transaction volumes coming in at US$24 billion, down 5% on the same quarter a year ago. Cross-border investors remained active on both sides of the ledger in Q1, accounting for 22% of total investment volumes. Intra-regional purchaser capital flow within Asia Pacific was almost four times higher than inter-regional, due largely to a shift towards investors focusing on markets closer to home in light of economic uncertainty. Liquidity in the market is slowing, possibly due to weaker global economic growth conditions and record high pricing even as most Asia Pacific countries are still in expansionary monetary policy mode, with Japan recently surprising the market with a negative interest rates policy. The start of gradual U.S. interest rate normalisation could see a shift in global capital flow dynamics and new assets coming to market, as cyclical investors take profits while longer-term income-seeking investors take new positions. Strong start for Australia, while several years of elevated investment activity dries up supply in Japan Transaction volumes in Australia reached US$3.3 billion in Q1 2016, up 33% year-on-year. Overseas investors, in particular from Asia Pacific, continue to be attracted to Australia due to its high-quality assets and above-average yield spread. By contrast, transaction volumes in Japan fell 26% year-on-year to US$9.6 billion. Although transactional activity by J-REITs rebounded for the quarter, a lack of single large asset deals continues to weigh on investment volumes. With little evidence of an improving economic outlook and the yen climbing to its highest level against the U.S. dollar since 2014, the Bank of Japan may potentially push interest rates further into negative territory. As such, we expect steady demand from both domestic and international investors in 2016, supported by low cost of borrowing and a good yield spread. Investors will continue to seek core stabilised assets in China China recorded US$2.8 billion worth of transaction volumes in the first quarter, up 10% year-on-year. The result was despite a relative lack of willing sellers, as well as the real estate investment market became increasingly polarised between Tier 1 and Tier 2 cities. Institutional investors are continuing to seek core stabilised assets in major cities, which are hard to come by given strong rental growth and a record year of investment in 2015. Looking ahead, there may be greater diversity of transactions as opportunistic investors look for assets in other asset classes or seek distressed assets in secondary markets. Hong Kong begins year strongly, while Singapore and India register falls Investment activity in Hong Kong more than doubled year-on-year to US$2.9 billion in the first quarter of 2016, as the appetite of Chinese investors showed no signs of abating after setting record transaction pricing in 2015. Meanwhile, Singapore ended Q1 on a subdued note, recording US$0.7 billion in transaction volumes, down 66% on Q1 2015, with a lack of big-ticket transactions for the quarter as increasing vacancies and record new completions weighed down investor sentiment. Elsewhere, India’s investment volumes fell by 19% year-on-year to US$0.7 billion due to a lack of available quality assets as investors look towards development and debt products to gain exposure to the real estate sector. COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 11 Global Market Perspective, Second Quarter 2016 US$ billions Direct Commercial Real Estate Investment – Quarterly Trends, 2007-2016 240 210 228 211 205 204 190 180 166 163 159 146 150 120 118 120 119 113 110 107 100 100 90 211 174 170 169 154 143 133 124 110 100 108 91 73 66 66 66 69 60 41 43 35 30 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 0 Americas EMEA Asia Pacific Rolling Four-Quarter Average Source: JLL, May 2016 Europe Brussels Frankfurt London Madrid Milan Moscow Paris Stockholm Americas Boston Chicago Los Angeles New York San Francisco Toronto Washington DC Sao Paulo Mexico City Asia Pacific Prime Office Yield Shift, Q1 2015-Q1 2016 Beijing Hong Kong Mumbai Seoul Shanghai Singapore Sydney Tokyo -100 Q4 2015 - Q1 2016 Q1 2015 - Q3 2015 Basis point change -50 0 50 Source: JLL, May 2016 COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 12 Global Market Perspective, Second Quarter 2016 Capital Values and Yields Yield compression maintained despite investor caution In the majority of major office markets, yields have remained stable, but the direction of travel is still downwards with the mean prime office yield (across 21 major office markets) compressing to 4.8%, down 20 basis points on a year ago. Europe registered yield compression in several markets during Q1 2016 including Stockholm (-25 basis points), Madrid (-25), Brussels (-10) and Milan (-10). Capital appreciation expected to slow in 2016 Capital value appreciation on prime assets (across 26 markets) has held broadly steady at 8.7% year-on-year. There has been particularly strong capital appreciation over the past 12 months in Stockholm (+33.5%), Madrid (+26.8%), Dubai (+20%), Sydney (+18.3%), Los Angeles (+16.0%) and Tokyo (+15.1%) Annual capital appreciation is expected to slow to about 4% in 2016, driven primarily by income growth. In Europe, star capital value performers this year are likely to be Madrid, Stockholm and Brussels. Tokyo and Sydney should top the performance ranks in Asia Pacific, while Boston, Chicago, Los Angeles and San Francisco are projected to outperform in the Americas. Prime Office Yields, 2007-2016 Mean Prime Office Yields* % 7.2 6.87% 6.7 6.2 5.7 5.49% 5.2 4.80% 4.7 bps 70 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 2015 2015 2015 2015 2016 50 30 10 -10 -30 Yield Compression (bps) *Across 21 Major Office Markets Source: JLL, May 2016 COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 13 Global Market Perspective, Second Quarter 2016 Corporate Occupiers Occupier activity robust despite caution Despite the considerable stock market and macroeconomic volatility seen in the first quarter, corporate occupiers continued to be active in many major global markets. However, while aggregate leasing levels were still robust, there was evidence of caution among corporate occupiers in leading markets including New York, London, Singapore and Beijing. Earnings growth and expansion is being seen in a wide range of industries; however pressures remain to drive efficiency from real estate. The financial services sector is focused on consolidation and rationalisation of its foot print in global hubs with nearshoring, cost reduction and workplace optimisation initiatives high on the agenda. The energy sector is also experiencing continued pressure from low oil prices, which is resulting in portfolio reviews, cost reduction initiatives and asset monetisation programmes. Corporate decision-making on hold in selected markets In Asia Pacific, the slowdown in China impacted sentiment and corporate decision-making in Q1 2016. This led to some signs of greater hesitancy and protracted time frames for strategic real estate decisions. International companies in China are currently focused on cost efficiency and portfolio optimisation, particularly in Tier 1 cities. Singapore, and to a lesser extent Hong Kong, have also experienced hesitancy and lower levels of demand for space. A slight softening in the PMI and in corporate confidence indicators did not slow occupier activity in mainland Europe. However, there were some signs that the UK referendum on EU membership was impacting corporate occupier decision-making. This aligns with a recent JLL survey of corporate occupier clients which showed that 33% of respondents would consider putting UK leasing decisions on hold until after the referendum. The occupier markets across the U.S. started 2016 with activity that was strong, albeit slightly slower than in prior quarters. In general, occupiers are expanding more cautiously. 54% of U.S. tenants are maintaining their existing footprint going forward, rather than expanding any further. This more conservative approach could be related to the slowing profits in large corporations, and may also be a sign of the holding pattern that we often see in election years. Technology transforming real estate requirements Technology-enabled workplaces are becoming more common across the globe. In the U.S., research on the budgets of clients’ interior build-outs are showing very interesting results, with IT costs as a proportion of overall construction budgets increasing rapidly from around 5% of overall construction budgets over the last 10 years. More recent build-out budgets show the expansion of IT services from cabling and wiring to more than a dozen items for technology, including access devices, infrastructure, mobility, connectivity, data security systems, wireless connections and upgrades, business-specific apps, company-specific conferencing and presentation capabilities. All of these items can add up to 35% or more of a budget for a truly technology-focused company. We see this theme in every tenant build-out today, from traditional law firms, to new campuses built by companies like Facebook and Apple. The aesthetics and prestige of an office, which were formerly the primary considerations, are beginning to take a back seat to the technology and the connectivity within buildings. Growing focus on flexible working solutions A growing corporate focus on co-working initiatives was also notable in Q1 in many markets across the globe. Originally a workplace format favoured by start-ups and SME’s, larger organisations are increasingly looking to capture some of the innovation and flexibility benefits co-working solutions can bring. We expect continued focus and strategy refinement in this area throughout 2016 as organisations explore the best models to adopt. COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 14 Global Market Perspective, Second Quarter 2016 Global Office Market Conditions Matrix*, 2016-2018 Market 2016 2017 2018 Market 2016 2017 2018 Market MARKET Chicago Brussels Beijing Los Angeles Frankfurt Hong Kong New York London (West End) Mumbai San Francisco Madrid Shanghai (CBD Overall) Toronto Moscow Singapore Washington DC Paris Sydney Mexico City Stockholm Tokyo Sao Paulo Dubai 2016 2017 2018 Tenant Favourable Neutral Market Landlord Favourable * Relates to conditions in the overall office market of a city. Conditions for prime CBD space may differ from the above. Source: JLL, May 2016 COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 15 Global Market Perspective, Second Quarter 2016 Global Real Estate Health Monitor Economy Metro Area GDP Real Estate Investment Markets OECD Leading Indicator City Investment Volumes Capital Value Change Prime Yield Real Estate Occupier Markets Yield Gap Rental Net Change Absorption Vacancy Rate Supply Pipeline Beijing 6.9% -0.1 37% 4.0% 6.3% 342 4.0% 3.3% 2.6% 13.3% Boston 2.9% -0.1 -15% 10.8% 3.8% 199 8.0% 1.5% 13.9% 2.5% Chicago 2.6% -0.1 -5% 7.6% 4.6% 199 3.1% 2.1% 14.5% 1.5% Dubai 4.1% na 98% 20.0% 7.5% na 20.0% na 17.0% 8.3% Frankfurt 2.2% -0.1 -26% 4.3% 4.4% 421 4.3% 0.4% 8.9% 1.8% Hong Kong 2.5% na 92% 6.3% 3.2% 178 14.7% 3.2% 3.3% 4.4% London 3.4% -0.1 -36% 9.4% 3.5% 209 2.1% 2.9% 3.3% 5.3% Los Angeles 2.6% -0.1 18% 16.0% 4.2% 199 13.3% 1.5% 15.0% 1.0% Madrid 3.2% 0.0 -36% 26.8% 4.0% 255 6.8% 1.7% 10.5% 1.4% Mexico City 3.4% 0.1 -98% -4.6% 7.4% 136 -3.3% 4.0% 14.0% 19.2% Milan 1.6% 0.0 0% 11.4% 4.4% 316 4.3% 0.7% 13.2% 2.6% Moscow -1.5% -0.4 74% -4.8% 10.5% 123 -4.8% 5.5% 15.9% 8.3% Mumbai 7.4% 0.1 226% 1.0% 9.8% 216 -1.0% 7.2% 19.5% 14.4% New York 2.8% -0.1 4% 4.4% 3.3% 199 1.3% 0.0% 10.0% 1.0% Paris 1.7% 0.0 -14% 9.9% 3.3% 284 2.1% 0.3% 7.3% 3.5% San Francisco 3.0% -0.1 -53% 9.8% 3.5% 199 9.8% 2.6% 8.2% 5.3% Sao Paulo -3.3% -0.1 -79% -9.3% 9.8% 406 -9.3% 0.0% 21.5% 13.5% Seoul 2.8% 0.0 -1% 4.7% 4.6% 282 1.3% 0.3% 10.8% 3.2% Shanghai 6.1% -0.1 65% 13.4% 5.8% 342 9.9% 17.7% 9.4% 38.1% Singapore 2.5% na -36% -9.1% 3.9% 194 -15.7% -0.3% 5.0% 11.4% Stockholm 3.4% 0.1 -9% 33.5% 3.8% 324 17.8% 2.7% 7.8% 1.3% Sydney 2.7% 0.0 -31% 18.3% 5.5% 287 15.7% 2.2% 7.7% 3.7% Tokyo 2.0% -0.1 -65% 15.1% 3.0% 303 6.1% 4.1% 2.3% 9.2% Toronto 2.8% -0.1 2% 14.6% 4.6% 342 3.3% 0.5% 9.8% 2.4% Washington DC 2.7% -0.1 -13% 3.9% 4.1% 199 1.5% 0.7% 17.3% 1.5% Real estate data as at end Q1 2016 Definitions and Sources Metro Area GDP: Change in Real GDP. Metropolitan Area Projection, 2016. Source: Oxford Economics OECD Leading Indicator: Composite Leading Indicator. Change in Index. Latest Month. Source: OECD City Investment Volumes: Direct Commercial Real Estate Volumes. Metro Area Data. Rolling Annual Change. Source: JLL Capital Value Change: Notional Prime Office Capital Values. Year-on-Year Change. Latest Quarter. Source: JLL Prime Yield: Indicative Yield on Prime/Grade-A Offices. Latest Quarter. Source: JLL Yield Gap: Basis Points that Prime Office Yields are above or below 10-year Government Bond Yields. Latest Quarter. Source: JLL, Datastream Rental Change: Prime Office Rents. Year-on-Year Change. Latest Quarter. Source: JLL Net Absorption: Annual Net Absorption as % of Occupied Office Stock. Rolling Annual. Source: JLL Vacancy Rate: Metro Area Office Vacancy Rate. Latest Quarter. Source: JLL Supply Pipeline: Metro Area Office Completions (2016-2017) as % of Existing Stock. Source: JLL COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 16 Global Market Perspective, Second Quarter 2016 Office Markets Office Demand Dynamics Office Demand Leasing market momentum falters in the first quarter… Global economic uncertainty, which set off a stock market decline early in the New Year, shifted business sentiment during the quarter from one of heightened optimism to one of increased caution. As a result, momentum in the leasing markets slowed moderately in Q1 2016 as occupiers carefully reconsidered relocation and expansionary plans. …but overall volumes hold up reasonably well, despite uncertainty The first quarter is traditionally the quietest of the year, so leasing volumes in Q1 2016 were down (-23%) on a particularly strong Q4 2015, but on a year-on-year basis volumes were only marginally lower (-1%). Moreover, leasing volumes in both Europe and Asia Pacific held up well during Q1 2016, increasing by 14% and 7% respectively year-onyear. Leasing levels in the United States fell by 10% year-on-year to their lowest since the Global Financial Crisis as concerns over the economy’s stability grew. But with fears of a recession now diminished, leasing activity is expected to ramp up over the course of the year. Technology, finance and outsourcing lead demand Technology and financial services continue to shape demand across all three global regions. Technology hotbeds from Silicon Valley and Seattle, to Stockholm, Berlin and Bengaluru have registered the strongest corporate demand. Meanwhile e-commerce firms have been active in the office leasing markets in several emerging economies such as India, China and Indonesia. Global leasing volumes in 2016 expected to match 2015 levels In the context of a weaker-than-expected first quarter, we have revised down our global projections for the full-year 2016 and now forecast leasing volumes to broadly match 2015 levels, with some upside potential of up to 5%: Asia Pacific is expected to outperform the other regions, with leasing volumes growing by around 10%-15% in 2016, supported by robust outsourcing markets and the continued strength of domestic occupiers in China. Leasing markets in the U.S. are predicted to recover their strength following a particularly weak first quarter, with full-year 2016 volumes at least matching the robust 2015 level. We expect European leasing volumes to continue to hold up in 2016. Our current forecast is for a 5%-10% decrease, but on the back of the strong activity recorded at the start of the year there is some upside potential. Momentum falters temporarily in the U.S. Fear of a near-term recession spooked many U.S. tenants in the first quarter and, as a result, expansion plans were put on hold. Nevertheless, many corporates are still keen to move in order to accommodate record-level employment and changing workplace preferences. Overall leasing activity across the U.S. was dominated by technology and financial services firms in the first quarter. Tech-rich markets such as Seattle, Silicon Valley and Austin saw the strongest net absorption, with many of the largest technology companies like Facebook, LinkedIn, Microsoft and Oracle moving forward with expansion plans. COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 17 Global Market Perspective, Second Quarter 2016 Most telling of the current office market trends in the U.S., however, is the continued expansion of shared office space. WeWork and Regus were very active during the quarter, as were several smaller players. The Greater New York region registered substantial occupancy losses, with several large, planned vacancies hitting the New York market during the quarter, while New Jersey also recorded significant negative net absorption. Q1 leasing volumes in Europe at their strongest since 2011 Q1 2016 saw a continued improvement in occupier market activity across most of Europe, with office leasing volumes totalling 2.65 million square metres, up 14% year-on-year and the strongest first quarter since 2011: Germany was again the star performer in Europe. The combined Q1 take-up for its five largest markets was 16% higher year-on-year. Berlin continues to be one of the key outperformers with volumes more than double the 10-year average, while Frankfurt, which has so far lagged the other key cities, experienced a strong start to the year. Leasing volumes in Paris during Q1 increased by 19% on Q1 2015. The continued increase in occupier requirements and overall demand for office space point towards a more sustained market recovery, after a relatively lacklustre performance in 2013-2014. Meanwhile, office take-up in London increased by 2% year-on-year. However, there has been a dip in take-up in the City submarket, which is likely to continue into Q2 as space under offer has decreased over the last six months. London’s overall volumes for the full-year 2016 are likely to be lower than the near-record levels of 2015. In Madrid and Barcelona, transaction levels tailed off somewhat in Q1 after the spike in demand at year-end, while Amsterdam recorded a slow start to the year. Aside from these markets the overall trend in leasing activity across Europe is up, with other noteworthy Q1 performances including: Brussels (+53%), Dublin (+43%), Budapest (+37%) and Stockholm (+34%). Asian markets hold up relatively well, but Australia has a weak quarter In Asia Pacific, gross leasing activity was up 7% year-on-year in Q1 2016: Strongest leasing activity in Q1 was found in Bengaluru, Tokyo, Delhi and Manila. Bengaluru saw the highest leasing volumes in Asia Pacific on the back of big-ticket transactions, while Tokyo saw good pre-commitments on upcoming supply. While demand has softened in some emerging Southeast Asian economies, supply shocks in the oil and gas industry have had a greater impact on Grade A office markets than a slowing Chinese economy. New leasing was down in Beijing and Shanghai, partly due to the timing of new supply and less available space. Otherwise, demand for office space in China’s Tier 1 markets was largely sustained despite slowing growth in the country’s economy. However, effects are being felt elsewhere in the region with the resources-centric economies in some Australian cities suffering from China’s slowdown. Australia’s leasing volumes in Q1 dropped by 24% year-onyear, with all markets down except Melbourne. Demand in Sydney remained healthy, underpinned by education and IT sectors; however, activity by the tech sector was less than a year earlier and this contributed to lower volumes. COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 18 Global Market Perspective, Second Quarter 2016 millions sqm Global Office Demand – Gross Leasing Trends, 2012-2016 11.0 10.5 10.0 9.5 9.0 8.5 8.0 7.5 7.0 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413 Q114 Q214 Q314 Q414 Q115 Q215 Q315 Q415 Q116 24 markets in Europe; 44 markets in the U.S.; select markets in Asia Pacific Source: JLL, May 2016 millions sq m Global Office Demand – Gross Leasing Trends, 2012-2016 42 41 40 Projection 39 38 37 36 35 2012 2013 2014 2015 2016 24 markets in Europe; 44 markets in the U.S; select markets in Asia Pacific Source: JLL, May 2016 COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 19 Global Market Perspective, Second Quarter 2016 Office Supply Trends Office Construction Development cycle peaks, but supply pipeline is under control At a global level, 2016 is expected to represent the peak of the office development cycle with 16.8 million square metres of new deliveries anticipated. Current projections suggest that completions will then diminish to around 15.8 million square metres by 2018. As we have highlighted in previous reviews, these levels are still well below the previous development peaks of 2001 and 2008. Robust fundamentals are encouraging developer activity in the U.S. During the first quarter, total U.S. development volumes increased to 9 million square metres. This marks the highest level of development thus far in the cycle, as consistent expansionary activity has encouraged developers to break ground where supply constraints persist. Nonetheless, development remains below the previous two peaks (at nearly 13 million square metres in 2000 and 10 million square metres in 2008). Despite improved fundamentals in most U.S. office markets, many secondary and tertiary markets have minimal new supply and, where development is underway, high pre-leasing rates have reduced the relief to supply that tenants are seeking. Office construction in Europe remains below-trend Across Europe, around 750,000 square metres of new office space was completed in Q1 2016, of which 40% was located in Paris and London. While Q1 2016 office completions were up 25% year-on-year, overall deliveries for the full-year 2016, at 4.8 million square metres, should be below the 10-year average Some concerns have been voiced around the development pipeline in London. While speculative construction continues to increase, new space is usually being absorbed ahead of completion. The 1.2 million square metres of office space due to be completed in 2016-2017 might push up vacancy rates slightly, but no supply shock is expected. In Germany, around 1 million square metres of office space is due to be added in the five largest office markets in 2016. While this is up 23% on the 10-year average, this is unlikely to push up vacancy rates; in fact, given high levels of demand, vacancy rates are more likely to fall across most German cities. Healthy office supply additions in Asia, but pre-leases help ease impact Asia Pacific stock additions are expected to hit a peak of nearly 7 million square metres in 2016, with more than half recorded in India and China. Pre-commitments continue to mitigate the effect of new supply on vacancy rates in several markets. COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 20 Global Market Perspective, Second Quarter 2016 millions sq m Global Office Completions, 2000-2018 20 U.S. 15 Europe Asia Pacific Average 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (F) (F) (F) 24 markets in Europe; 25 markets in Asia Pacific; 44 markets in the U.S. Asia relates to Grade A only. Source: JLL, May 2016 Office Supply Pipeline – Major Markets, 2016-2017 Shanghai Mexico City Mumbai Sao Paulo Beijing Singapore Tokyo Moscow Dubai London San Francisco Hong Kong Sydney Paris Brussels Seoul Milan Boston Toronto Frankfurt Washington DC Chicago Madrid Stockholm Los Angeles New York 2017 2016 Completions as % of existing stock 0 5 10 15 20 25 30 35 40 45 Covers all office sub-markets in each city. Tokyo – CBD - 5 kus Source: JLL, May 2016 COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 21 Global Market Perspective, Second Quarter 2016 Office Vacancy Global vacancy rates edge upwards The global office vacancy rate has edged up slightly for the first time since 2012, rising by 10 basis points to 12.2%. This is largely due to marginal increases in the Americas (to 14.7%) and Asia Pacific (to 10.9%). Meanwhile the vacancy rate has continued its steady decline in Europe (to 8.6%). The global office vacancy rate is expected to hover at around 12% for the remainder of the year, with falls in the U.S. vacancy rate balanced by a modest rise in Asia Pacific to around 11.7%. Vacancy is expected to be broadly stable in Europe. New deliveries in U.S. push up national vacancy rate During the first quarter, new office deliveries in the U.S. outpaced the rate of occupancy growth, pushing the overall national vacancy rate up by 10 basis points to 14.8%. This was especially evident in Dallas, Houston, Philadelphia and Silicon Valley. For the full-year 2016 however, national occupancy growth is expected to outpace new supply, with more than half of the pipeline already pre-leased. Demand for both quality and location remain high on the list of must-haves for occupiers. Nearly a dozen CBD markets posted vacancy rates below 10% in the first quarter including New York (Midtown South), Seattle, San Francisco, Philadelphia and Boston. European office vacancy drops to 8.6%, the lowest rate since Q1 2009 The office vacancy rate in Europe dropped by 10 basis points in Q1 2016 to 8.6%, the lowest level since Q1 2009. Development completions in 2016 should remain well below the 10-year average, negating any potential for an increase in the regional vacancy rate. In fact, many European office markets are expected to tighten further in 2016. Asia Pacific vacancy edging up Pre-commitments continue to mitigate the effects on vacancy of high levels of new supply in several Asia Pacific markets. Even so, the regional vacancy rate is edging up and is expected to push towards 11.7% by the end of the year from 10.9% currently. Supply is still very tight in Beijing (2.6% vacancy rate), Hong Kong (3.3%) and Tokyo (2.3%), while vacancy is falling in Shanghai (9.4%). Latin America cities face significant new supply In Sao Paulo, a combination of weak net absorption and additional new supply has kept the vacancy rate in excess of 20% for the past two years; however, rates fell by 200 basis points in Q1 2016 to 21.5%, the first significant fall since 2010. In Mexico City, the historically high supply pipeline is taking a toll on overall market conditions, as the total vacancy rate increased 100 basis points to 14% during the first quarter. Although demand from tenants is stable, the sizeable pipeline should continue to push up vacancy rates over the next one to two years. COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 22 Global Market Perspective, Second Quarter 2016 Office Vacancy Rates in Major Markets, Q1 2016 Global 12.2% Europe 8.6% Americas 14.7% Asia Pacific 10.9% 25% 20% 15% 10% Quarterly movement 5% Seoul Mumbai Shanghai Sydney Singapore Hong Kong Beijing Tokyo Moscow Milan Madrid Brussels Frankfurt Stockholm Paris London Sao Paulo Los Angeles Washington DC Chicago Boston Mexico City New York Toronto Stable San Francisco 0% Increased Decreased Regional vacancy rates based on 49 markets in the Americas, 24 markets in Europe and 24 markets in Asia Pacific. Covers all office submarkets in each city. All grades except Asia and Latin America (Grade A only). Tokyo relates to CBD – 5 kus. Source: JLL, May 2016 Global and Regional Office Vacancy Rates, 2009-2016 17.9% 18 Vacancy Rate (%) 16 14.7% Americas 14.4% 14 11.9% 12 12.2% GLOBAL 11.9% 10.9% Asia Pacific 10.3% 10 8.6% Europe Q1 2016 Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014 Q3 2014 Q2 2014 Q1 2014 Q4 2013 Q3 2013 Q2 2013 Q1 2013 Q4 2012 Q3 2012 Q2 2012 Q1 2012 Q4 2011 Q3 2011 Q2 2011 Q1 2011 Q4 2010 Q3 2010 Q2 2010 Q1 2010 Q4 2009 8 44 markets in the Americas, 24 markets in Europe, 25 markets in Asia Pacific. Grade A space vacancy only for Asian markets Source: JLL, May 2016 COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 23 Global Market Perspective, Second Quarter 2016 Office Rental Trends Rental growth running at a healthy clip Despite a slightly more subdued picture for global office demand during the first quarter, supply shortages and limited new deliveries have kept the leasing environment highly competitive in many of the world’s dominant office markets. Prime office rents across 26 major markets increased by a healthy 4.4% year-on-year in Q1 2016. They were led by Dubai - DIFC (+20%), Stockholm (+17.8%), Sydney (+15.7%), Hong Kong (+14.7%), Los Angeles (+13.3%) and Shanghai (+9.9%). A pace of about 3%-4% annual rental growth is expected to continue this year, led by Sydney. By contrast Singapore, Sao Paulo and Mexico City are projected to register further declines in 2016. Landlords push up asking rents in the U.S. Rental rates in the U.S. increased at their highest rate thus far in the cycle with a 3.2% rise during the first quarter alone. But rental growth remains highly variable at a market and class level, with those markets near or within the peaking phase of the cycle (e.g. San Francisco Bay) continuing to register accelerated rental growth during the first quarter. Landlord confidence in U.S. suburban markets has also risen appreciably as the available supply of large, Class A blocks has diminished, while submarkets with a strong supply of creative space or in mixed-use settings with high amenities (such as Seattle’s Lake Union and New York’s SoHo) have consistently outperformed. Over the course of 2016, U.S. rental rate increases will continue, but may slow as markets in the peaking phase of the cycle reach an inflection point while welcoming new supply across markets. In the longer term, the eventual cooling down of the labour market and further economic uncertainty globally will likely signal a slowdown in leasing dynamics starting in 2017 and moving into 2018. Rental growth at a four-year high in Europe In Q1 2016, the European Office Rental Index rose by 3.4% year-on-year, the steepest increase in four years. For the full-year 2016, rental growth for European offices is expected to reach around 2.5%. Over the last 12 months most European office markets have joined the growth cycle, with just three markets still reporting annual rental declines. In Paris, improved occupier sentiment pushed up rental levels for the third consecutive quarter after a prolonged period in which prime rents were relatively volatile and not finding their direction. Demand for prime office space in Germany remains exceptionally strong with Frankfurt recording a 2.8% increase in prime rents in Q1, although rental growth rates are projected to ease from the high levels seen in 2015. Meanwhile, Barcelona and Madrid also continued to see robust rental uplifts. Other European office markets that recorded prime rental growth in Q1 were Budapest (+4.8%), Milan (+2.1%), and Stockholm (+1.9%). Average rental growth moderates across Asia Pacific Rental growth slowed in many Tier 1 markets across Asia Pacific at the start of the year. As a result, the region’s net effective rents grew at a more moderate pace in Q1 2016 (0.6% quarter-on-quarter compared with 1.1% in Q4 2015). Growth on a year-on-year basis averaged 3.1%. Sydney’s rents continued to trend higher, recording the strongest quarterly uplift (+4.0%) in the region, although rents in energy-related Australian markets such as Brisbane and Perth remained subdued in Q1. In Tokyo, rental growth slowed despite tight vacancy, while rental decline accelerated in Singapore due to lacklustre demand and pressure from a large supply pipeline. Low oil prices continue to weigh on energy-related markets such as Kuala Lumpur and Jakarta where sustained weakness has turned to negative demand as many energy companies have cut headcounts and surrendered workspace in order to control costs. A supply boom in Jakarta has compounded the situation there, putting further downward pressure on rents. COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 24 Global Market Perspective, Second Quarter 2016 Prime Offices – Rental Change, Q1 2015-Q1 2016 Dubai Stockholm Sydney Hong Kong Los Angeles Shanghai San Francisco Boston Madrid Tokyo Frankfurt Milan Beijing Toronto Chicago London Paris Washington DC New York Seoul Brussels Mumbai Mexico City Moscow Sao Paulo Singapore Americas EMEA Asia Pacific % change -20 -15 -10 -5 0 5 10 15 20 Based on rents for Grade A space in CBD or equivalent. In local currency. Source: JLL, May 2016 Prime Offices – Rental Change, 2010-2016 10 Rental change (y-o-y %) 9 8 8.6% 7.7% 7 6 5 4 3.7% 3.9% 3-4% 2014 2015 2016 3 1.5% 2 0.8% 1 0 2010 2011 2012 2013 Prime office rental growth: unweighted average of 26 major markets. Source: JLL, May 2016 COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 25 Global Market Perspective, Second Quarter 2016 Prime Offices – Projected Changes in Values, 2016 Capital Values Rental Values + 10-20% Sydney Madrid, Stockholm + 5-10% Dubai*, Boston, Chicago, Los Angeles, San Francisco, Madrid Hong Kong, Stockholm, Shanghai, Tokyo Tokyo, Brussels, Sydney Dubai*, Boston, Chicago Los Angeles, San Francisco, Shanghai + 0-5% London*, Frankfurt, Paris* New York*, Toronto, Washington DC Milan, Beijing, Brussels, Seoul London*, Hong Kong, Milan Paris*, New York*, Toronto Washington DC, Beijing, Seoul Mumbai, Frankfurt - 0-5% Mumbai, Mexico City, Moscow Mexico City, Moscow - 5-10% Sao Paulo Sao Paulo - 10-20% Singapore Singapore *New York – Midtown, London – West End, Paris – CBD, Dubai – DIFC. Nominal rates in local currency. Source: JLL, May 2016 Prime Offices – Rental Clock, Q1 2016 Johannesburg Toronto Frankfurt, Seoul Mexico City Americas Asia Pacific EMEA Houston Singapore Beijing, Dallas San Francisco London Hong Kong, Shanghai, Los Angeles Rental Growth Slowing Rental Values Falling Rental Growth Accelerating Rental Values Bottoming Out Tokyo Berlin, Stockholm, New York Boston Sydney Amsterdam, Madrid, Chicago Delhi Milan Paris Brussels Moscow Sao Paulo Warsaw Istanbul, Prague, Dubai Zurich, Mumbai, Washington DC Based on rents for Grade-A space in CBD or equivalent. U.S. positions relate to the overall market Source: JLL, May 2016 COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 26 Global Market Perspective, Second Quarter 2016 Retail Markets U.S. retail market continues to tighten While the U.S. retail vacancy rate stayed flat at 5.6% in the first quarter of 2016, demand has comfortably exceeded supply in the past four quarters, resulting in vacancy compression of 40 basis points over the last year. Rents rose 0.5% from the fourth quarter, and grew 1.5% year-on-year. Among U.S. shopping centre types, power centres are still seeing the tightest overall market conditions, with total vacancy of 4.5%. Prime space remains in high demand across Europe International and domestic retailer demand remains focussed on Europe’s top cities. As a result, new pockets of retail are appearing in the larger cities, while prime areas are growing in the smaller key cities. Dublin (4.4% quarter-onquarter) as well as UK cities including London (3.4%), Manchester (3.3%) and Birmingham (2.6%) showed the most vigorous rental growth in Q1. Ireland appears to be bouncing back significantly, while robust international and domestic demand is driving UK rental growth, with little regard being paid to uncertainty around the EU referendum. Growth was also seen in Barcelona (2.0%) and Madrid (2.0%), as well as in Stockholm (1.0%). Prime high street rents in Dublin, London, Paris and Rome along with the German cities of Berlin, Munich, Hamburg and Dusseldorf are predicted to experience the healthiest growth to the end of 2017. Retailer demand mixed in Asia; stable rental growth in most markets Fast fashion retailers and F&B operators underpinned demand in China’s Tier 1 markets in Q1 2016, although there is evidence that some fast fashion operators have witnessed a slowing performance, while some luxury retailers continued to right-size. Hong Kong’s retail market continued to see ongoing weakness with retail sales trending lower, while subdued consumer spending and a prolonged labour shortage in Singapore impeded retailer confidence. Retailer demand remained robust in Tokyo’s prime shopping areas as international brands looked to secure higher profile space. Generally stable market conditions were seen in India with limited availability in prime malls. Average rental growth was relatively stable in Q1, but further declines were evident in Singapore and Hong Kong’s high streets. In Australia, rents continued to rise in the CBD and bulky goods sub-sectors, while some signs of rental growth are emerging across other formats as well. Over the short term, we see limited scope for much rental growth in most markets, and Hong Kong is likely to experience the biggest decline in rents for high street space. COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 27 Global Market Perspective, Second Quarter 2016 Prime Retail – Rental Clock, Q1 2016 Dubai Hong Kong Shanghai, Beijing Singapore Berlin Tokyo San Francisco , Houston Miami, New York, Boston Rental Growth Slowing Rental Values Falling Los Angeles Madrid, Milan London, Paris Rental Growth Accelerating Rental Values Bottoming Out Mumbai Delhi, Washington DC Chicago Moscow Sydney Americas EMEA Asia Pacific Prime Industrial – Rental Clock, Q1 2016 Amsterdam San Francisco Shanghai Singapore Frankfurt Hong Kong, Dallas Beijing, Los Angeles, Chicago Houston, Philadelphia Rental Growth Slowing Rental Values Falling Tokyo, Atlanta, New York London Rental Growth Accelerating Rental Values Bottoming Out Moscow Boston Sydney Madrid Warsaw Paris Americas EMEA Asia Pacific Relates to prime space. U.S. positions relate to the overall market Source: JLL, May 2016 COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 28 Global Market Perspective, Second Quarter 2016 Industrial Warehousing Markets U.S. industrial market forges ahead The U.S. industrial vacancy rate is at a 15-year low, with the Q1 2016 vacancy rate at 6.3%, significantly lower than the previous cycle’s low point (7.4% in 2007). Net absorption has been positive for six years running and warehouse asking rents have increased for five years straight. Given the tight vacancy level, select larger blocks of available Class A modern space choices remain limited and new construction is offering tenants more quality space options. U.S. industrial outlook stays strong The remainder of 2016 will see further speculative construction deliveries increasing across the U.S., but they will largely remain concentrated in and around the nation’s major warehouse markets. Speculative deliveries are expected to total 12 million square metres during the year, which marks a 13.9% increase from 2015. However, despite new supply increasing, the U.S. vacancy rate is anticipated to stay in the low 6% range through year-end. European logistics markets remain a reliable source of strength European logistics markets continue to benefit from structural changes in global supply chains with take-up this year expected to remain at similar levels to the record volumes seen in 2015, although scarce supply has the potential to start impacting overall activity. Supply chain redesigns to support omni-channel retail concepts and to further shorten customer delivery times are a major driver of new warehousing demand this year. Locations close to large city conurbations are, in particular, expected to see rising demand for units in the small to medium size segment (between 5,000 to 30,000 square metres). In addition, we are likely to see more occupiers starting to explore locations within cities. However, limited adequate available units and significantly higher prices compared to traditional warehousing locations will keep occupational warehousing activity in cities modest for the time being. New warehousing space under construction in Europe reached a cyclical high at the start of 2016, marking the highest level since 2008. Nevertheless, growing land scarcity (especially for larger units), resistance to grant planning permission for large-scale warehouses and higher land prices for units close to cities could prevent further strong growth in development activity. With a large share of take-up in new-build space in recent years, this could further impact occupier choice. Third-party logistics and e-commerce firms continue to bolster demand and rental growth in Asia Pacific Third-party logistics providers, e-commerce companies and manufacturers remained active in China and Tokyo in the first quarter of 2016, while there was more expansion and relocation activity of third-party logistics companies in Hong Kong despite the ongoing weakness of the external trading market. In Singapore, business park demand continued to be supported by R&D and IT firms while demand from the financial sector remained lacklustre. Rents in Q1 were generally subdued across the Asia Pacific region, although rental growth accelerated in Shanghai as new facilities saw higher-than-average rents. Flat to moderate growth in rents is projected for most markets over the short term on the back of generally restrained export and retail sales growth. COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 29 Global Market Perspective, Second Quarter 2016 Hotel Markets 2016: The year of hotels and hospitality sector M&A The year started off with uncertainty related to stock market volatility, low oil prices impacting numerous resource-driven markets and economies, and news about slowing economic growth in China, which all made investors and lenders more cautious. As expected, global hotel transactions activity was subdued during the first quarter of 2016 compared to the stellar levels seen in early 2015. Hotel transactions declined by 58% year-on-year during the first three months of 2016, totalling approximately US$10.3 billion. Hotel Investment Volumes, Q1 2016 v Q1 2015 US$ Billions Q1 2016 Q1 2015 % Change Americas EMEA Asia Pacific Total 5.8 3.1 1.3 10.3 14.8 7.7 1.8 24.4 -60% -60% -25% -58% Volumes and % Change have been rounded Source: JLL, May 2016 Some of the aforementioned macro issues have settled down since mid-March and investor sentiment is showing renewed signs of improvement. Transactions activity in Q2 is expected to pick up and the second half of 2016 stands to be very busy, notwithstanding any demand shocks. Overall, volumes will be less frothy in 2016 but core investors will feel more comfortable given that some transactions and valuations in 2015 had moved ahead of market fundamentals. In Q1 2016, 21% of total hotel investment flowed into primary markets, compared to 31% during the same period in 2015, confirming the shift of interest towards secondary hotel investment markets. However, appetite for trophy assets in key markets remains high with buyer demand from the Middle East and China. The share of cross-border purchases accounted for less than one-fifth of total volumes in the first quarter, down from 40% market share in Q1 2015. As the year progresses, the percentage of cross-border purchases is expected to ratchet up, driven in part by Anbang Insurance Group’s announced purchase of Strategic Hotels & Resorts for approximately US$6.5 billion. Home-sharing sites, such as Airbnb and HomeAway, continue to expand their footprint in the lodging market, moving hotel companies to examine opportunities to increase competitiveness. Improving cost effectiveness and distribution through acquisitions is one of many options hotel companies consider in order to gain leverage against online travel agencies and technology outfits. The competitive bidding for Starwood Hotels & Resorts, as well as AccorHotels’ recently announced acquisition of Onefinestay, confirm the appeal of mergers and acquisitions to drive scale, further encouraging other hotel companies to explore similar options. Moreover, Asian corporations are keen to purchase European and U.S. hotel management platforms to secure vertical integration for outbound travellers from Asia. COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 30 Global Market Perspective, Second Quarter 2016 Private equity groups remain key buyers Private equity and investment funds remained the dominant buyer group during Q1 2016, accounting for 28% of total volumes, with Blackstone among the most active. Eight of the top ten private equity buyers exclusively acquired assets in their home country, marking a slowdown in outbound investment by U.S.-based private equity funds. Non-traded and public real estate investment trusts (REITs) were the second most active buyer type, securing 24% of total volumes, with REITs based in the United States, Japan and Singapore accounting for the majority of acquisitions. Developers and property companies ranked third, representing 16% of deal volumes, while hotel operators reduced their acquisition spending, securing 11% of transactions compared to 21% in Q1 2015. Acquisition activity from high-net-worth individuals remained stable, while sovereign wealth funds paused their spending, having little deployment requirements or market timing pressure, and will deploy capital when they are particularly attracted to a specific property or deal. Continued strong interest in prime hotel real estate markets across EMEA Hotel transaction volumes in Europe, the Middle East and Africa (EMEA) reached US$3.1 billion in Q1 2016, largely driven by single-asset deals which amounted to 75% of total volumes. Portfolio transactions accounted for the remaining 25%, having fallen by 85% compared to Q1 2015, marking the biggest decline in portfolio transaction levels across the three global regions. Within EMEA, interest in primary destinations remains strong, with key hotel investment markets accounting for 30% of deal volumes in Q1 2016 compared to 15% in Q1 2015. London secured 60% of all hotel investments in the UK, while Germany’s key cities accounted for 60% of all German transactions. Hotel transactions in Madrid and Barcelona accounted for nearly two-thirds of total investment in Spain. At a country level, the UK captured 34% of investments in EMEA totalling US$ 1.1 billion, followed by Germany (27%), Spain (14%) and France (6%). The most prominent buyers in EMEA during Q1 2016 were investment funds and private equity with a buyer share of 22%, followed by institutional investors (21%) and developers and property companies (16%). The largest net buyers of hotel real estate were institutional investors with US$432 million, while developers and property companies, as well as investment funds and private equity, were net sellers with US$528 million and US$393 million respectively. Middle Eastern investors, although still eager to acquire, were more cautious, capturing 10% of total volumes within EMEA. Capital from the Middle East was invested in the UK and Central Europe, while Asian money, accounting for 4% of EMEA volumes, targeted assets in South-Western Europe. U.S. accounts for half of global volumes As was forecast, the Americas experienced a notable softening in hotel investment volumes from the stellar levels recorded during Q1 2015 with transactions totalling US$5.8 billion during the first three months of 2016. Portfolio transactions declined by a wide margin; however, announced multi-property acquisitions, such as Anbang’s purchase of Strategic Hotels & Resorts, are likely to significantly increase portfolio deal volumes in the coming months. Single-asset sales fell to US$4.8 billion in the first quarter, with key transactions including the sale of the Seattle Marriott Bellevue and Ascott Residence Trust’s purchase of the Sheraton Hotel Tribeca New York City. The U.S. secured 50% of total investment globally in Q1, confirming its status as the single most liquid country in terms of transaction volumes. 22% of capital was invested in the country’s key hotel markets, including Boston, Chicago, New York and San Diego, compared to 42% during the same period of last year when gateway cities accounted for the bulk of sales. Private equity and investment funds were the largest buyer group, accounting for 34% of all purchases. Non-traded REITs were the second most active group with a buyer share of 18%. Public REITs’ share prices have been depressed and they have focused on repurchasing shares rather than making large acquisitions. Their buyer share declined COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 31 Global Market Perspective, Second Quarter 2016 considerably from previous years to reach 10% during Q1 2016. REITs are expected to be net sellers in 2016, notwithstanding the fact that stock prices have seen some improvement in recent weeks. The first quarter saw some divergence in buyer and seller pricing expectations, but we expect the realignment necessary to reignite some transaction activity to occur over the coming months, consequently improving deal volumes later in the year. Japan exceeds investment expectations Following one of the strongest years for Asia Pacific in terms of hotel transactions, the region saw volumes drop 25% in the first quarter to total US$1.3 billion. As projected, Japan accounted for the lion’s share of investment, capturing 75% of total volumes, followed by Australia with 19% and India with 4%. In addition to Japan, it is expected that South Korea, Vietnam and Cambodia will remain sought-after markets. The transactions markets have been relatively quiet in mainland China, Macau and Hong Kong, while Singapore, Thailand and Indonesia are also likely to face some headwinds during the next months. Driven by activity in Japan, portfolio sales rose by 15%, accounting for over 50% of volumes across the region. Portfolio acquisitions by REIT Invincible Investment Corporation, among others in Japan, pushed portfolio transactions to US$637 million. Single-asset transactions fell 48% and notable deals included the Loisir Hotel Spa Tower Naha sold by Morgan Stanley Japan Group for US$170 million, and the acquisition of an 81% stake in the Hyatt Regency Pune for US$54 million by Indian SAMHI. REITs were the most active buyers, representing 70% of hotel real estate investment in Asia Pacific during Q1 2016. Investment funds and private equity firms accounted for 20% of the market, followed by developers and property companies. Investment funds and private equity have been the most active sellers, making up nearly 70% of the sellside with US$822 million. COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 32 Global Market Perspective, Second Quarter 2016 Residential Markets U.S. rental apartments see surge in rental growth despite wave of completions Rental growth accelerated meaningfully in the U.S. multifamily market in the first quarter, as national rental levels showed gains of 4.7% year-on-year. This figure is an increase of 80 basis points on the year and 10 basis points quarter-on-quarter, representing a peak for this cycle and the largest rise since 2007’s 4.7% growth figure. Aside from New York’s notable 250 basis point increase to 6.0% rental growth year-on-year, the greatest uplifts were evident in the Western and Southeastern regions of the country. As the development pipeline across the country continues to expand, the U.S. vacancy rate has crept up 10 basis points from 2015, to 4.4%. The greatest increases in vacancy across markets are all directly tied to markets that have seen heightened and sustained development activity going back to 2014. Among these markets, Austin’s completion rate ending 2015 was 4.6% of inventory, well above the national average of 1.8%. As a result, Austin has seen a 100 basis point increase in vacancy year-on-year, with a 6.5% vacancy rate. Boston and Minneapolis are other markets working to churn through short-run completion gains to inventory. Absorption is maintaining its strength nationally, remaining unchanged at 1.6% of inventory for 2015. Uncertainty impacts UK investment activity The UK housing market is maintaining a steady performance, with year-on-year price growth holding at 5-6% for most indices at the start of the year. As ever there are large underlying variations, notably in London where prime values continue to rebase, dipping marginally into negative territory. In contrast, price growth in outer London is the strongest in the UK, pushing closer to 8% pa. Construction in London has begun to ebb, hit by a range of factors including weaker demand, rising build costs and an unfavourable policy backdrop. UK residential investment markets are experiencing the first slowing of market activity in several years, brought on by Brexit hesitations. In addition, the Chancellor’s attempts to quell enthusiasm from buy-to-let investors by increasing stamp duty charges by 3% also included large-scale investment, to the surprise of the sector. Most investors remain committed to expansion into the sector, but the downside risk brought on by these factors is constraining the willingness of buyers to pay ever sharper pricing. Forward-funding deals remain the most popular due to the lack of standing stock, with notable transactions by LaSalle Investment Management and APG/Qatari Diar in Manchester in the first quarter. Germany investment market calmer after exceptional 2015 As expected, calm returned to the residential investment market in Germany in Q1 2016, following an exceptional 2015. Notably, the proposed merger of Vonovia and Deutsche Wohnen, the two biggest companies in the industry, collapsed in January. Slightly cautious behaviour is also being observed in the residential investment market and, at €2.1 billion and 21,600 apartments, the volume traded in Q1 was more than 25% down on the result for the same period in 2015. However, there has also clearly been a rise in the number of smaller transactions with lot sizes of less than €100 million per deal, with the number increasing by 30% and the volume by 36% compared to Q1 2015. The biggest transaction in the first quarter was Corestate’s sale of approximately 2,700 apartments for €100 million to an international opportunistic investor. Major portfolios were also sold by Vonovia, Deutsche Wohnen and UK-based Grainger and, as a result, the proportion of deals accounted for by foreign purchasers increased to around 30%, and by foreign sellers, to over 40% of the total investment volume. Around a quarter of the total German transaction volume in Q1 was generated in Berlin, followed by Hamburg (€205 million) and Munich (€180 million). COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 33 Global Market Perspective, Second Quarter 2016 Netherlands sales activity increases Residential sales activity in the Netherlands increased by 20% in Q1 2016 on a year earlier, while the number of available properties for sale was down 9% at 153,000. Meanwhile, average house prices rose by 5.5% to €225,000 over the past 12 months. Residential investment volumes amounted to €512 million in Q1, mainly due to two large portfolio deals, including a 1,275 dwellings purchase by Patrizia Immobilien for approximately €153 million. Demand stable in Portugal The residential market in Portugal continues to maintain a steady pace of activity. The Golden Visa programme has seen stronger take-up after declines in 2015, registering a new peak for the past three years in March. Prices are also increasing in Lisbon, with growth of 1% over the first quarter, and this is expected to continue in 2016. France begins 2016 on a quiet note 2016 has begun quietly in France, with only single-asset residential sales in evidence. There are three key trends worth noting in the French residential investment market. First, institutional investors have returned as the spread between commercial and residential yields has declined sharply, supported by the desire to diversify commercial exposure. Secondly, investors are increasingly interested in senior serviced housing, particularly through new-build development projects. Finally, the ongoing lack of stock remains a challenge. Sales activity decreases in Dubai Residential sales volumes have continued to decline in Dubai as investors become more cautious and high initial deposits price many buyers out of the market. Data from the Dubai Land Department shows a substantial (31%) decline in the volume of activity over the first quarter of 2016 (compared to the same period in 2015). Lower transaction volumes have been one factor contributing to the decrease in residential prices, where average prices have fallen by 11% for villas and 10% for apartments over the past year. Rentals in Dubai have held up more strongly than sale prices, but average rents also declined by around 5% over the year. Rate cut supports sales in China; most other Asia Pacific markets less active Policy restrictions remained in place in various markets across Asia during the first quarter. Sales activity was strong in China’s Tier 1 markets, supported by an accommodative policy stance; however, local governments in Shanghai and Shenzhen tightened home purchase restrictions towards the quarter-end to rein in surging home prices. In Hong Kong, overall home sales plummeted during Q1 owing to a lack of new launches and cautious buyers. Sales volumes increased in Singapore with a newly-launched project witnessing good demand due to affordable pricing. At the same time, leasing demand was generally subdued in key markets including China, Hong Kong and Singapore. Rental growth was limited in most Asian markets, with rents rising in slightly more than half of all monitored markets and a similar trend is expected to persist in the short term. COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 34 Global Market Perspective, Second Quarter 2016 Key Investment Transactions in Q1 2016 Europe, Middle East and Africa Country Belgium City Brussels Property Ellipse Sector Office Sales price US$m Comments 237 AG Real Estate has completed the sale of the Ellipse building to the Taiwanese investor Fubon Life Insurance. The building, located in Brussels’ North District, was built in 2006 by AG Real Estate and Immobel (CIB). The building has 50,342 sq m of office and mixed-use space, 2,573 sq m for archives and 279 parking spaces. It is fully leased to two public entities: the Flemish Community, which occupies about 90% of the building, and IBPT (l’Institut Belge des Services Postaux et des Télécommunications), the remainder. The building offers a guaranteed cash flow for nine years. France Paris 2-8 Rue Ancelle Office 299 Unibail-Rodamco has sold the office building located on 2-8 rue Ancelle in Neuillysur-Seine to a JV between ACM Vie SA and funds managed by Amundi Immobilier for €271 million. The 17,200 sq m office building is let to CMS Bureau Francis Lefebvre for a 12-year fixed period, and is located between La Défense and the CBD. Germany Frankfurt Villa Kennedy 93 German Estate Group and Commerz Real Investment have concluded the salepurchase agreement of the 163-room Villa Kennedy, a Rocco Forte Hotel. 591 Blackstone has acquired 36 logistics assets with c. 1 million sq m of leasable space. The properties are located primarily in Germany (24), as well as in Hungary (5), Romania (3), Poland (2), Slovakia (1) and Russia (1). The transaction also included three development projects in Hamburg, Bucharest and Ploiesti (Romania), as well as land reserves. Blackstone will integrate all the assets into Logicor, its European logistics platform. 496 Partners Group has acquired a Nordic portfolio from Brunswick Real Estate (BRE) for €450 million. It consists of the remaining assets in Sveafastigheter Fund III, namely 97 retail, office and hotel properties across Sweden and Finland, with a total leasable area of 360,000 sq m. Hotels Various Immofinanz Portfolio Various Sveafastigheter Mixed Fund III Portfolio Multiple Various Delta City Portfolio Retail 224 JLL has advised Delta Real Estate on the sale of two Delta City shopping centres in Belgrade, Serbia and Podgorica, Montenegro for a total of €203 million to a JV between South African Hyprop, the country's largest listed specialised shopping centre REIT, and Homestead Funds. This transaction represents the largest singleasset deal in South-Eastern Europe in five years. Multiple Various Tivoli Portfolio Hotels 119 Thailand’s Minor Hotel Group has completed the acquisition of the six-hotel, 1,700 room Tivoli portfolio comprising four assets in Portugal and two in Brazil from Espirito Santo Investment. Multiple Multiple Industrial Russia Moscow Evolution Tower Office 800 Transneft, the Russian oil giant, has bought Evolution Tower in the Moscow City business district for $800 million from Snegiri Development. The distinctive tower, which resembles a strand of twisting DNA, contains 79,053 sq m of office space, a shopping centre and car park. Spain Madrid Hotel Villa Magna 194 Sodim SA has agreed to the sale of the independent 150-room 5-star hotel to Turkey’s Dogus Group. Spain Various Topland Eroski Portfolio Retail 405 Invesco Real Estate has acquired a portfolio of hypermarkets in Northern Spain for its open-ended pan-European fund for €358 million as part of a sale & leaseback deal. The portfolio consists of 11 properties across the Basque Country and Navarra regions with a total gross leasable area of around 136,000 sq m. The sites are 100% leased to the Eroski Group, one of Spain’s largest retailers. Sweden Various Pandox Portfolio Hotels 100 Sweden’s Pandox has completed the sale of an eight-hotel portfolio, including brands such as Scandic Hotels and First Hotels, to Midstar. UK Birmingham Grand Central Retail Shopping Centre 479 Hammerson has acquired the new Grand Central shopping centre for £335 million. Opened in September 2015, the centre provides 435,000 sq ft of high-quality prime retail space, anchored by John Lewis. It was developed by Network Rail and Birmingham City Council as part of the £750 million New Street Station regeneration project. UK London Club Quarters London Hotels 258 UK-based Chelsfield Group has sold a two-hotel portfolio consisting of Club Quarters Gracechurch Street and Club Quarters St. Paul's to a JV between AXA Real Estate Investment Managers and Danish pension fund ATP Group. UK London Hilton London Wembley Hotels 142 Al Habtoor Group, a Dubai-based conglomerate, has completed the acquisition of the 361-room hotel from Oaktree Capital Management. Hotels COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 35 Global Market Perspective, Second Quarter 2016 Country City UK Various Property Ardent UK Portfolio Sector Sales price US$m Comments Student Housing Mapletree Investments, the property arm of Singapore’s state investment fund Temasek, has bought a portfolio of UK student accommodation for £417 million in its first venture into the sector. The portfolio, which was sold by International Mutual Fund, comprises 25 buildings with more than 5,500 beds in cities including London, Edinburgh and Manchester. 597 Asia Pacific Country Australia City Property Melbourne Oxford Cold Storage Portfolio Sector Sales price US$m Comments Industrial 152 LOGOS Property Group has completed the largest-ever cold storage facility purchase in Australia by securing the privately-owned Oxford Cold Storage portfolio from AB Oxford. The property portfolio, with a 25-year triple net lease, traded on a NPI yield of about 6.75%. Australia Perth Forrest Centre Office 159 YT International, an Australian subsidiary of Perth Upper China Hotel, has purchased the property from the Insurance Commission of Western Australia (ICWA) for A$220 million. Forrest Centre sits at the western end of the CBD and comprises two grade-A office buildings with a total NLA of about 31,000 sq m. Australia Sydney Woolworths Headquarters Office 243 Mirvac Group has sold its 44,800 sq m office headquarters located at 1 Woolworths Way to Inmark Asset Management for A$336 million. The property has a long-term lease signed recently with Woolworths until 2031 and is 100% occupied with an NPI yield of about 6.1%. 227 Ascendas has made its maiden office purchase in Australia through the acquisition from Townwood of a 20-storey office building located on 100 Arthur Street. Innovation Place has a total NLA of 27,196 sq m with a WALE of more than four years. Its anchor tenant NBN Co., which occupies about 60% of the building, recently extended its lease until 2020. Australia Sydney Innovation Place Office Australia Sydney 77 King Street Office 115 Keppel REIT has divested its entire stake in 77 King Street for A$160 million to Invesco. The sale price is about 27% above the latest valuation of A$126 million on 31 July 2015 and will result in a divestment gain of about A$28 million. The property is located in the CBD and offers around 14,000 sq m of NLA over 18 levels of offices and 2 levels of retail space. China Shanghai East Ocean Center Office 375 CLSA, a Chinese securities firm, has acquired East Ocean Center from its real estate fund CLSA Capital Partners. The building, located in the commercial and business heart of the Huangpu district, was completed in 1997 and comprises two office towers with a total GFA of circa 78,000 sq m. China Shanghai Waterfront Place Blocks E & G 116 Pramerica Real Estate Investors has purchased Waterfront Place located in the Changfeng Park area from ARA Asset Management - ARA Asia Dragon Fund II. Hong Kong Dah Sing Financial Centre Hong Kong Hong Kong Trade and Industry Department Tower India Mumbai India Pune Hong Kong Office 1,286 China Everbright Group, a state-owned financial services company, has acquired a top-tier office building from Sea Group at an estimated price of HK$24,993 per sq ft. The estimated spot transaction yield is about 3%. The office tower, located in the Wan Chai district, is reportedly to be used as office space by the group. Office 760 Link REIT has acquired the office tower located in Mong Kok from the Hong Kong Government. The property has about 40 years left under the Land Grant Scheme commencing 30 May 1980. It comprises 2 basement floors, 4 storeys of retail podium and 15 floors of office space with a total GFA of about 26,400 sq m. Viviana Mall Retail 148 Sheth Corporation has sold a 50% equity stake in the mall located on the outskirts of the city to Singapore's sovereign wealth fund GIC. Viviana Mall is one of the largest malls in India with a GLA of 1 million sq ft and is 100% occupied by strong anchor tenants and renowned brands. Hyatt Regency Pune (81% Stake) Hotels 54 Hotel development and investment firm SAMHI has purchased an 81% stake in the 222-room and 102-serviced apartment luxury property. The remaining 19% is owned by Vascon Group. Office COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 36 Global Market Perspective, Second Quarter 2016 Sales price US$m Comments Country City Property Sector Japan Chiba NTT Makuhari Building Office 187 NTT Urban Development has sold the large-scale office building located at Makuhari, Chiba to its private investment corporation. The property, which was built in 1993, has a total GFA of about 170,500 sq m and is leased to companies related to NTT. Japan Chiba Hanwa Ryutsu Center Tokyo HQ Industrial 164 Hanwa Logistics Tokyo has sold a part of its headquarters building, located in the Chiba Bay area, to one of its related entities. Following the transfer, Hanwa will lease back the asset as a distribution warehouse for the immediate future while its headquarters will move to Gunma prefecture. Japan Kashiwa-shi The Crest Hotel Hotels 52 Meiji Yasuda Life Insurance Company has sold the 87-room hotel to Kenedix Advisors. Japan Okinawa Loisir Hotel & Spa Tower Naha Hotel 174 United Urban Investment Corporation has acquired the full-service hotel from Morgan Stanley. The hotel is one of the largest in Okinawa and has 602 rooms. It is managed by Solare Hotels and Resorts and the estimated NOI yield is 5.9%. Japan Various Logiport REIT Portfolio Industrial 1,401 LaSalle Logiport REIT has acquired a portfolio which consists of eight industrial assets from One M Logistics G.K. The deal includes the acquisition of an 100% equity stake in six assets and partial stakes in Logiport Hashimoto (55%) and Logiport Sagamihara (51%). In total, the portfolio comprises a total GFA of about 936,000 sq m and tenants include third-party logistic firms. Japan Various Invincible Portfolio Hotel 535 Invincible Investment Corporation has purchased four hotel properties from its sponsor Fortress Investment Group. The assets are located in Tokyo, Tochigi and Fukuoka with a total of 965 rooms. The average occupancy rate and daily rate stood at 91.7% and JPY 14,623 in 2015. Japan Various Nippon Prologis REIT Portfolio Mixed 366 Nippon Prologis REIT has purchased four industrial properties from its sponsor Prologis. The assets are located in Saitama, Ibaraki, Osaka and Miyagi with a total acquired GFA of about 215,000 sq m. Major tenants include a pharmaceutical company and third-party logistic firms. South Korea Seoul Jongno Tower Office 320 Samsung Life and Youngbo have sold the 33-storey office tower which was completed in 1999 and is located in the Jongno district. South Korea Seoul CJ E&M Center Office 139 CJ E&M Corporation, a South Korean entertainment and media contents company, has purchased the headquarters building from four of its subsidiaries in a related-party transaction. Taipei China Bills Finance Corporation Office Headquarters Building 148 Wisdom Marine Group has bought the headquarters building from Ting Hsin International Group for about NT$4.9 billion. 383 Keangnam Enterprises has sold Vietnam's tallest building to AON Holdings, a mid-sized South Korea financial group. Samjong KPMG, the principal underwriter for selling debts of Landmakr 72, selected AON as the preferred bidder for the deal. There was keen interest by other parties including Goldman Sachs and Hana Financial Investment. Taiwan Vietnam Hanoi Keangnam Hanoi Landmark Tower Mixed Americas Sales price US$m Country City Property Sector Brazil Sao Paulo Thera Corporate Office 60 Barzel Properties has acquired a 45% stake in this nearly 13,000 sq m office asset located in the Berrini submarket from CCP. Brazil Sao Paulo Cidade Jardim Office 33 BR Properties has sold a 50% interest in its more than 7,000 sq m office property located in the Itaim submarket to Brookfield Asset Management. Canada Montreal Les Galeries de Retail Lanaudière 55 Desjardins Group has purchased a 50% interest in the roughly 25,000 sq m retail property in the Terrebonne submarket from First Capital Realty. COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved Comments 37 Global Market Perspective, Second Quarter 2016 Sales price US$m Country City Property Sector Canada Toronto Park Place Retail 104 Canada Post has acquired a 50% stake in this circa 49,000 sq m shopping centre located in the Barrie submarket from North American. Canada Toronto 12333 Airport Road Industrial 47 Bentall Kennedy has purchased the nearly 53,000 sq m warehouse asset in the Caledon submarket from Hopewell Development Corporation. Canada Vancouver Royal Centre Office 312 Brookfield Canada Office Properties has sold the 36-storey, nearly 55,000 sq m CBD office asset to German investor Klaus-Michael Kühne at a reported initial yield of 3.7%. U.S. Atlanta Fairburn Logistics Center, Building 1 Industrial 120 TPA Group has sold this 105,000 sq m industrial 'flex' asset in Fairburn to Deutsche AWM. U.S. Boston 415 Main Street Office 105 The Massachusetts Institute of Technology has purchased the 13-storey, over21,000 sq m Cambridge office property from Boston Properties. U.S. Boston Hotel Commonwealth Hotels Boston 125 Xenia Hotels & Resorts, a non-traded U.S. REIT, has completed the acquisition of the 245-room hotel from Fundamental Advisors. The property, a luxury independent lifestyle hotel, has recently undergone a significant expansion programme and will continue to be managed by Sage Hospitality. U.S. Clearwater Hyatt Regency Clearwater Beach Hotels 120 The resort hotel has been sold to Westmont Hospitality Group. The seller, Convergent Capital Partners, has owned the 242-room beachfront property for about three years. U.S. Denver Cherry Creek Shopping Center Retail 170 A JV of Invesco Real Estate and OliverMcMillan has acquired the 31,000 sq m lifestyle centre from AmCap Inc. and Hart Realty Advisors. U.S. Los Angeles El Monte Shopping and Automotive Center Retail 85 Merlone Geier Partners has acquired the nearly 44,000 sq m retail asset in El Monte from Decron Management Corporation. U.S. Minneapolis Lawson Commons Office 68 TIER REIT has sold this roughly 41,000 sq m office property located in central St. Paul to Frauenshuh Companies. U.S. New York 787 Seventh Avenue Office 1,941 U.S. New York Sheraton Tribeca New York Hotel Hotels 158 Magna Hospitality Group, a privately-held hotel real estate investment firm, has concluded the sale of the hotel to Singapore-based Ascott REIT. The purchase of the 369-room hotel in the heart of Tribeca is Ascott Residence Trust's second acquisition in New York in less than a year. U.S. Seattle Seattle Marriott Hotels Bellevue 187 U.S.-based Watermark Capital Partners, a non-traded REIT, has completed the acquisition of the 384-room hotel from White Lodging. The newly-developed property opened in July 2015 and is located in Bellevue, Washington. U.S. Seattle West 8th Office 370 Deutsche AWM has acquired the 28-storey, approximately 46,000 sq m CBD office tower, at a reported 4.2% initial yield, from AEW Capital. U.S. Silicon Valley Eastridge Mall Retail 225 A JV of Pacific Retail Capital Partners and Silverpeak Real Estate Partners has purchased this 73,000 sq m mall from REIT General Growth Properties at a reported 6.75% initial yield. U.S. Washington, DC 733 10th and G Office 180 A JV of Investcorp, ScanlanKemperBard and Carbyne Property Group has purchased the nearly 16,000 sq m CBD office asset at a reported 4.6% initial yield from Jamestown. U.S. Various Garrison Hotel Portfolio 137 Garrison Investment Group has completed the sale of a 10-hotel portfolio to a JV between Gatehouse Capital, Waramaug Hospitality and Interstate Hotels & Resorts. The portfolio deal includes over 1,100 rooms. Hotels COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved Comments A JV of CalPERS and Commonwealth Partners has purchased the 152,000 sq m office asset from AXA Group at a reported 4.6% initial yield. 38 Global Market Perspective, Second Quarter 2016 Illustrative Office Occupational Transactions in Q1 2016 Europe Country City Property Tenant Industry Sector Floorpsace sq m France Paris Boulevard Richelieu, Rueil-Malmaison Novartis Pharmaceuticals 42,000 France Paris 10 Rue Delarivière Lefoulon - Puteaux (La Défense) Deloitte Business Services 30,500 France Paris Rue de la Gare - Paris 19 BNP Banking & Financial Services 24,100 France Paris Rue Cardinet - Paris 17 Siaci Saint Honoré Banking & Financial Services 14,300 France Paris 41 Rue Ybry - Neuilly-sur-Seine Sephora Trade 13,400 Germany Berlin Gesundheitsministerium Bundesministerium für Gesundheit Public Administration 28,900 Germany Frankfurt Taunustor ECB Banking & Financial Services 17,800 Germany Frankfurt Frankfurter Strasse SAP ITES 9,000 Germany Hamburg Wandsbeker Zollstrasse Confidential Banking & Financial Services 6,500 Germany Cologne Köln Triangle Confidential Public Administration 12,900 Germany Munich Neubau Imtech MorphoSys Pharmaceuticals 12,000 Germany Stuttgart Ruppmannstrasse Confidential Manufacturing 13,800 Russia Moscow Evolution Tower Transneft Mining & Exploration 79,053 Russia Moscow Kuntsevo Plaza Philip Morris Trade 4,784 Russia Moscow Port Plaza REA Kapitalnoe stroitelstvo Construction 3,720 Russia Moscow Omega 2 - Simonov Plaza JSC Rusatom Overseas Infrastructure 3,010 UK London 30 Gresham Street Investec Banking & Financial Services 13,928 UK London 100 Bishopsgate Brookfield Banking & Financial Services 10,971 UK London Aldgate Tower AECOM Business Services 8,072 UK London R7 Handyside Street New Look Trade 11,799 UK London 2 Eastbourne Terrace WeWork Construction & Real Estate 9,941 UK London Copyright Building Capita ITES 8,096 COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 39 Global Market Perspective, Second Quarter 2016 Asia Pacific Country City Property Tenant Industry Sector Floorpsace sq m Australia Melbourne 562-574 Bourke Street Victoria Legal Aid Public Administration 8,000 Australia Sydney 255 Pitt Street Commonwealth Bank of Australia Banking & Financial Services 7,700 China Beijing Yuetannanjie Tower 1 Zhongtou Zhengquan Banking & Financial Services 1,800 China Shanghai Two ICC LEGO Trade 4,400 Hong Kong Hong Kong Metroplaza Tower 1 Prudential Banking & Financial Services 5,100 India Delhi Orient Bestech Business Tower Grey Orange ITES 12,200 India Mumbai Empire Plaza II WPP Marketing Business Services 3,800 Japan Tokyo Tokyo Nihonbashi Tower Marubeni Corporation Trade 30,000* Malaysia Kuala Lumpur Menara Hap Seng 2 Mitsui & Co Trade 2,800 South Korea Seoul D Tower Société Générale Banking & Financial Services 2,200 *JLL estimate Americas Country City Property Tenant Industry Sector Floorpsace sq m Brazil São Paulo São Paulo Corporate Bain & Company Business Services 5,064 Brazil Rio de Janeiro Candelária 62 Defensoria Pública da União Public Administration 6,401 Canada Montreal 1050 Beaver Hall Desjardins Banking & Financial Services 10,993 Canada Montreal Quartier Evolution Traffic Tech Logistics & Transportation 8,826 Canada Toronto 777 Bay Street Infrastructure Ontario Public Administration 43,107 Canada Toronto Royal Bank Plaza - North Tower RBC Banking & Financial Services 40,087 Canada Toronto 315 Front Street Infrastructure Ontario Public Administration 26,291 Canada Toronto One York Street CIBC Mellon Banking & Financial Services 12,566 U.S. Austin 13011 McCallen Pass Home Depot Trade 18,395 U.S. Boston 900 Chelmsford Street Kronos Business Services 34,450 COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 40 Global Market Perspective, Second Quarter 2016 Floorpsace sq m Country City Property Tenant Industry Sector U.S. Boston 100 Federal Street Putnam Investments Banking & Financial Services 23,412 U.S. Chicago 151 North Franklin Street CNA Financial Banking & Financial Services 25,548 U.S. Houston 609 Main Street United Airlines Transportation 20,903 U.S. New York 1095 Avenue of the Americas Salesforce ITES 18,829 U.S. New York 425 Park Avenue Citadel Banking & Financial Services 18,581 U.S. Orange County 2401-2421 N Glassell Street Volt Business Services 17,652 U.S. Silicon Valley 55 W Trimble/2610-2630 Orchard Parkway Toshiba ITES 20,313 U.S. Washington DC 7900 Harkins Road 2U ITES 23,500 COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. This report has been prepared solely for information purposes and does not necessarily purport to be a complete analysis of the topics discussed, which are inherently unpredictable. It has been based on sources we believe to be reliable, but we have not independently verified those sources and we do not guarantee that the information in the report is accurate or complete. Any views expressed in the report reflect our judgment at this date and are subject to change without notice. Statements that are forward-looking involve known and unknown risks and uncertainties that may cause future realities to be materially different from those implied by such forward-looking statements. Advice we give to clients in particular situations may differ from the views expressed in this report. No investment or other business decisions should be made based solely on the views expressed in this report COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. All Rights Reserved 41