Global Market Perspective - JLL

May 2017

Global Market Perspective JLL Global Research

Contents Global Market Perspective

3

Investment and leasing volumes hold steady Global Economy

7

Encouraging economic news, but political uncertainty clouds the outlook Global Real Estate Health Monitor

10

Sydney and Stockholm are the star office rental performers Real Estate Capital Markets

11

Investors continue to seek real estate exposure Capital Values and Yields

18

Office capital value growth decelerating as yield compression slows Corporate Occupiers

20

Business transformation driving portfolio change Office Markets

22

Leasing volumes are firm; rental growth set to soften as deliveries peak and vacancy edges upward Retail Markets

33

Focus on dominant locations in shifting retail market spurring rental growth Industrial Markets

35

Robust demand leading to intensifying competition for space as vacancy rates move lower Hotels Markets

36

Transaction volumes slow, but activity is expected to pick up through the year Residential Markets

39

Slowing expansion in U.S. rental apartments; institutional investment increasing in Europe Key Investment Transactions in Q1 2017

42

London recovers position as top investment destination Illustrative Office Occupational Transactions in Q1 2017

47

Corporate occupiers target millennial-friendly cities

COPYRIGHT © JONES LANG LASALLE IP, INC. 2017. All Rights Reserved

2

Global Market Perspective | May 2017

Real Estate Markets Maintain Stability Investment and leasing activity continues at steady pace Investor and corporate occupier activity has remained firm at robust levels despite ongoing political tensions and election cycles. Global investment and leasing volumes are largely unchanged from last year and are expected to remain solid through 2017, with investors continuing to seek exposure to real estate and signs that economic growth in developed and emerging markets is once again moving in tandem. While price volatility remains exceptionally low, overall rental and capital value growth is likely to slow gradually during 2017 as the development cycle peaks and more markets move into balance.

Global Commercial Real Estate Market Prospects, 2017

Capital values

Investment

3% Slowing

Firm

2017

Leasing Stable

Rents

prospects

2% Slowing

Vacancy rate

Development

Increasing

25% Peaking

Leasing, vacancy, development, rents and capital values relate to the office sector. Source: JLL, April 2017

Investment volumes stable as capital continues to target real estate Global transactional volumes stabilised in the first quarter of 2017, coming in at US$136 billion, roughly flat on the levels recorded in Q1 2016. Q1 saw the continuation of Brexit negotiations, an interest rate hike in the U.S., Dutch elections, and prolonged political tension ahead of elections in France and Germany. While threatening, this turbulence did not do much to upend markets, as Q1 2017 volumes were 6% higher than the Q1 average from 2012–2016. COPYRIGHT © JONES LANG LASALLE IP, INC. 2017. All Rights Reserved

3


Real estate investments remain attractive from a yield perspective; however, pricing concerns due to continued pressure on occupier fundamentals in key global markets could be an issue, with forecast rental growth in 2017 little changed from 2016. There does seem to be an improvement in the supply of investment stock, especially in developed markets, and even though it is unlikely that all of this stock will be traded in 2017, we anticipate that given this improving environment transactional volumes this year will be on a par with 2016 levels at up to US$650 billion.

Global office leasing activity remains firm Office leasing activity continues to be firm, with global volumes rising by 3% in Q1 2017 (year-on-year). The United States (+8% year-on-year), Western Europe (+9%) and Australia (+54%) each registered a robust uplift in leasing activity during the first quarter. Among the emerging markets, China Tier 1 cities (+46%) also recorded a notable improvement on a year ago. Global leasing volumes for the full-year 2017 are predicted to match broadly the levels recorded in 2016. Momentum is expected to be consistent in the U.S. with a slight increase in take-up projected for the full year. Europe and Asia Pacific, however, may struggle to maintain 2016 levels, with volumes forecast to fall modestly by up to 5%, although this hides marked divergence within regions.

millions sq m

Global Office Demand – Gross Leasing Trends, 2007 - 2017 45

42

Projection

39

36

33

30 2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

24 markets in Europe; 50 markets in the U.S; 22 markets in Asia Pacific Source: JLL, April 2017


4


Office rental growth maintains steady pace During the first quarter the global office vacancy rate remained stable at 11.9%, but is expected to trend upwards during the rest of 2017 as new office space comes on tap. Both Asia Pacific and the U.S. are likely to see higher vacancy rates by year-end, although the rate of increase should be relatively modest. Europe’s vacancy rate is anticipated to remain stable at around 8% for the remainder of the year. Annual rental growth for prime offices (across 26 major markets) accelerated in Q1 2017 to 3.0% (from 2.7% in Q4 2016). Nonetheless, rental growth is expected to soften during the remainder of 2017 – to about 2% (on average) – as more markets seek to absorb a greater volume of new deliveries. Most major office markets are likely to continue to sit in positive rental territory in 2017, with Sydney and Toronto set to top the global ranking for the full-year while Beijing, London, Mexico City, Sao Paulo, Shanghai and Singapore are likely to see a correction in prime rents over the next 12 months.

Focus on dominant locations in shifting retail market Changing consumer tastes and increasing e-commerce penetration are leading to a polarisation in retail markets, with retailer demand focused on dominant locations which have a growing importance for consumer service and brand experience. Despite an increasing volume of retail space scheduled for closure in the U.S., a limited development pipeline is contributing to continued declines in the national vacancy rate as rents continue to grow at a healthy pace. Meanwhile, high demand for the right space in Europe’s flagship locations is causing some retailers to take space in adjacent areas not previously regarded as prime. In Asia Pacific, F&B operators led demand during Q1 although rental growth was limited, with moderate increases recorded in Shanghai and Sydney.

Robust demand leading to intensifying competition for space in logistics markets The restructuring of logistics networks in response to growing e-commerce is continuing to spur rising levels of occupier demand. Absorption of space in the U.S. is still outpacing new deliveries, pushing the national vacancy rate to an all-time low in Q1 2017 with vacancy rates falling in nearly three-quarters of U.S. markets. The European average vacancy rate also moved lower, and with upward pressure on rents the majority of regional markets are anticipated to record rental increases in 2017. In Asia Pacific, demand in Q1 stemmed from third-party logistics and e-commerce companies, although rents remained stable on the previous quarter.


5


Hotel transaction volumes slow, but activity expected to pick up through the year The international hotel investment market ended the quarter on a cautious note, with transaction volumes closing the quarter at US$11 billion, down 5% compared to the same period last year, although investor interest in the sector remains high and activity is expected to pick up in the latter part of the year. China continued to be the largest exporter of outbound hotel capital in Q1 2017, and has quickly become a key source of international capital over the last few years, with an increasing investment allocation into the hotel sector.

Decelerating expansion in U.S. rental apartments Rental growth softened in the U.S. multifamily market during Q1 2017 as national absorption levels decelerated and new project completions nudged upwards, with new deliveries expected to peak in 2017. Institutional investment continues to grow in Europe, with new international as well as domestic entrants to the market in the UK and strong transactional activity evident in Germany and France. In Asia Pacific, further policy restrictions impacted sales volumes in China in the first quarter, while sales activity gathered pace in Hong Kong and Singapore.


6


Global Economy Encouraging economic news, but political clouds have not disappeared Some of the early-2017 gloom has dissipated over recent weeks, buoyed by a run of strong economic data. A range of leading indicators have surprised on the upside in Q1 with manufacturing and trade data especially robust, while the so-called Trump rally continues apace on financial markets. As a result, for the first time in several quarters, there has been a broad upward shift in economic expectations for the year. This is not to say that political risks have disappeared, although they appear to be receding. The early months of the Trump presidency have certainly been eventful, but have not yet produced the promised radical shift in policy, although critics would argue that this is for the best. In Europe, the results of the Dutch and French elections have represented a setback for European populists and some see this as a turning of the tide. The most encouraging economic development has been provided by evidence of a resynchronised global cycle, with the developed and emerging markets moving together for the first time in several years. The debt overhang in China is still a cause for concern, but its growth outlook has edged higher ending a long period of downgrades. Asia’s other emerging giant, India, fared even better in the latest revision as the negative impact of the recent de-monetisation works its way out of the figures later in the year. Brazil and Russia also seem to be reviving after a dark period. Given the exuberance of markets and decent jobs reports, a downgrade to the 2017 forecast for the U.S. is perhaps a surprise. An anticipated weak first quarter and tempered expectations for eventual fiscal stimulus explain the recent downgrade in near-term U.S. growth. In contrast, another upward revision has been recorded for the UK even as the triggering of Article 50 begins a prolonged period of uncertainty about its future role. Some caution should be exercised, however, as the UK upgrade in part reflects better-than-expected past performance and recent data have been more tentative. The political waters have been further muddied by the calling of a snap UK election for June. In the Eurozone, outlook changes have been marginal, although some healthy recent numbers suggest potential upside next quarter, providing there are no headwinds from political risks. GDP Projections for 2017 in Major Economies – Recent Movements Australia

China

France

Germany

India

Japan

UK

U.S.

January 2017

1.8

6.3

1.5

1.5

6.7

1.0

1.5

2.3

April 2017 (Latest)

2.8

6.5

1.4

1.8

7.2

1.4

1.9

2.1

+100

+20

-10

+30

+50

+40

+40

-20

Change (bps)

Source: Oxford Economics, April 2017


7


Fed rate hike causes few ripples Another Fed rate hike passed without much fanfare in March. The 25 bps rise in the benchmark rate takes U.S. policy rate levels to a range of 0.75%-1.00% for the first time this decade, still incredibly low by any historical standards, but driving a further wedge with policy rates in other developed economies. The consensus is that the Federal Reserve may move twice more before the end of the current year - a trend that is likely to add further strength to the U.S. currency, which may in turn raise concerns about the potential damage caused to a fragile global upturn. U.S. policymakers will continue to push on their own over the next year or so. Only 12 months ago, other Central Banks were experimenting with negative interest rates and most retain an ultraaccommodating stance, albeit that some liquidity measures are being curbed as the threat of deflation eases. While market rates have ticked up since last year, any upward movement in the Eurozone, Japan and even UK policy rates look at least two years away on current market expectation.

Modest uplift to the global outlook Improved data for Q1 2017, while encouraging, have not yet brought a radical revision in the mediumterm global outlook. Even after a modest upgrade for 2016-2017, the forecast pace of recovery remains disappointing by past standards, though the outlook is better than last year’s outturn. An improvement is in prospect for both developed and emerging markets, but they continue to grapple with the challenges created by the GFC and its aftermath and a lower rate of growth is the result. With Europe and Asia treading water, the Americas are expected to fill the gap – an often-repeated hope in this cycle. Any improvement will be relatively slow. The Trump administration has raised expectations about the U.S. economy, but despite some optimism about fiscal stimulus and bullish stock markets, the future direction of U.S. policy remains uncertain. With monetary conditions tightening, the projected period of below-trend growth is likely to continue into 2018. Asia Pacific will remain the strongest region in terms of output growth and risks are now more evenly balanced. Some good news from China of late is not expected to reverse the long-established secular slowdown of this maturing economy. While an abrupt downturn has been averted by policy response, annual growth rates are still forecast to edge lower and the debt overhang remains a concern longer term. India has faltered as de-monetisation impacts, but is expected to emerge stronger in late 2017 and beyond. Japan has sustained its recent improvement supported by policy, though traditional fragilities remain in its reliance on exports and weak real wages. The European recovery has continued and even broadened in Q1. Political obstacles are likely to prevent an upgrade as yet, but the Eurozone is probably the one region with upside in the short term. In Europe’s core markets, growth is sustained by solid domestic demand, though there are risks from rising inflation. Germany and France see a convergence in growth over the next 24 months towards an annual rate of 1.5%, slow by past standards, but in line with post-GFC norms. Outside the euro, the UK is expected to slow as the realities of Brexit bite. There is enough momentum to sustain growth at close to 2% this year, but performance dips to a five-year low in 2018-2019 as domestic demand softens.


8


Global Outlook, GDP Change, 2016 - 2018 2016

2017

2018

Global

3.0

3.4

3.7

Asia Pacific

5.4

5.3

5.2

Australia

2.5

2.8

2.4

China

6.7

6.5

6.1

India

7.5

7.2

7.5

Japan

1.0

1.4

1.3

Americas

0.7

1.8

1.6

U.S.

1.6

2.1

2.6

MENA

2.7

2.6

3.7

Europe

1.9

1.9

1.8

France

1.1

1.4

1.6

Germany

1.8

1.8

1.4

UK

1.8

1.9

1.3

Source: Oxford Economics, April 2017


9


Global Real Estate Health Monitor Economy

Real Estate Investment Markets

Real Estate Occupier Markets

City Metro

City

Investment

Capital

Area

Investment

Volumes

Value

Prime

Yield

Rental

GDP

Volumes

Change

Change

Yield

Gap

Change Absorption

Net

Vacancy

Supply

Rate

Pipeline

Beijing

6.8%

7.0

11%

-0.3%

6.3%

299

-1.1%

7.9%

4.6%

14.9%

Boston

1.9%

11.2

-26%

-4.6%

4.0%

161

0.4%

1.1%

13.9%

1.8%

Chicago

1.8%

10.3

-29%

-2.3%

5.2%

281

10.4%

1.3%

15.2%

1.8%

Dubai

2.2%

0.7

70%

0.0%

7.5%

na

0.0%

na

14.0%

4.4%

Frankfurt

1.6%

5.5

-2%

26.0%

3.5%

317

1.4%

-1.3%

9.0%

2.1%

Hong Kong

2.2%

9.4

-14%

11.0%

3.1%

152

9.1%

-0.2%

4.3%

4.3%

London

2.4%

26.6

-40%

-8.3%

3.5%

243

-8.3%

-0.5%

4.9%

5.6%

Los Angeles

1.9%

20.7

20%

-0.2%

4.4%

201

4.6%

0.5%

15.2%

1.3%

Madrid

3.1%

4.8

2%

14.4%

3.8%

210

7.3%

-3.1%

11.9%

1.8%

Mexico City

2.5%

0.5

386%

0.5%

7.4%

39

0.5%

5.1%

14.0%

20.1%

Milan

1.2%

2.7

-16%

18.2%

4.0%

182

6.1%

-0.3%

13.7%

2.7%

Moscow

1.1%

2.7

-21%

-6.3%

10.5%

256

-6.3%

1.4%

15.9%

5.8%

Mumbai

7.4%

0.2

34%

2.6%

9.6%

233

0.7%

6.6%

17.2%

14.4%

New York

2.0%

38.7

-17%

-6.3%

3.6%

121

2.3%

0.1%

10.3%

1.5%

Paris

1.4%

21.0

-9%

9.8%

3.0%

204

1.3%

1.2%

6.7%

3.6%

San Francisco

2.5%

8.8

-21%

-7.1%

3.8%

141

0.8%

0.8%

8.3%

6.4%

Sao Paulo

-0.5%

0.6

365%

-8.0%

10.3%

569

-3.3%

1.8%

24.6%

8.1%

Seoul

2.4%

13.1

107%

0.6%

4.6%

236

-3.5%

3.1%

10.8%

4.1%

Shanghai

6.3%

15.8

8%

1.3%

5.7%

241

0.6%

9.4%

16.8%

37.6%

Singapore

2.4%

10.7

35%

-4.5%

3.6%

136

-7.7%

2.1%

5.9%

10.2%

Stockholm

3.3%

3.9

11%

20.8%

3.8%

315

20.8%

1.1%

7.5%

2.0%

Sydney

3.2%

6.7

-2%

17.5%

5.1%

241

28.9%

1.2%

7.4%

2.2%

Tokyo

1.2%

18.0

-12%

3.4%

2.9%

283

1.6%

4.9%

2.7%

10.2%

Toronto

3.0%

7.0

9%

16.0%

4.3%

267

8.5%

1.5%

9.5%

1.6%

Washington DC

2.1%

12.7

-5%

-5.5%

4.5%

211

3.7%

0.2%

17.0%

2.9%

Real estate data as at end Q1 2017. See page 49 for definitions and sources.


10


Real Estate Capital Markets Investment Volumes In the face of continued political uncertainty, capital still seeks exposure to real estate Global transactional volumes stabilised in the first quarter of 2017, coming in at US$136 billion, roughly flat on the levels recorded in Q1 2016. The first quarter of the year saw the continuation of Brexit negotiations, an interest rate hike in the U.S., Dutch elections and prolonged political tension ahead of elections in France and Germany. While threatening, this turbulence did not do much to upend markets as Q1 2017 volumes were 6% higher than the Q1 average from 2012–2016.

Investors becoming increasingly selective in the U.S. The Americas kicked off the first quarter of 2017 as the most active region globally, recording volumes of US$58 billion, 5% lower than the same quarter of 2016. Much of this decline was driven by the U.S., where year-on-year volumes slipped by 12% as institutional investors became increasingly selective in the major markets. Elsewhere around the region, transaction levels more than doubled in Canada and almost tripled in Brazil. Surprisingly, Mexico posted its third best Q1 on record as volumes reached nearly US$1 billion.

Despite concerns around Brexit, UK volumes tick up; European markets also stronger Surpassing their pace from last year, European volumes were up 3% at US$52 billion in Q1. While concerns around Brexit remain, the UK posted its strongest quarter since 2015 in local currency terms. On the continent, Germany continues to be an engine for growth setting a record first quarter, while France also bettered its performance from this time last year. Central and Eastern Europe has maintained its robust run from 2016, with the Czech Republic leading the sub-region.

Volumes in Asia Pacific remain consistent After finishing 2016 with one of the strongest quarters on record, Asia Pacific started off 2017 on a solid footing with volumes of US$25 billion, up 1% from what we recorded in Q1 2016. Singapore rebounded from a slow first quarter last year with transaction levels more than doubling in Q1. Rallies in Japan (16%) and China (4%), helped offset setbacks in Australia (which is down almost 30%), Hong Kong (-27%) and South Korea (-4%).


11


2017 to match 2016 as supply of investment stock increases The first quarter of 2017 saw a carryover of some of the political uncertainty from last year, particularly in Europe where Brexit negotiations remain a top concern, and UK and German elections loom large. On the other side of the Atlantic, strengthening labour markets led an increasingly hawkish Fed to hike rates despite growing uncertainty around the fiscal stimulus promised by President Trump. The net result was a quarter where equity markets have continued to boom while bond yields have barely moved and reflation expectations in the developed world remain tempered. In this environment real estate investments continue to be attractive from a yield perspective; however, pricing concerns due to continued pressure on occupier fundamentals in key global markets could be an issue, with forecast rental growth in 2017 little changed from 2016. Despite the biggerthan-expected pullback in the U.S. there does seem to be an improvement in the supply of investment stock, especially in developed markets, although it is unlikely that all of this stock will be traded in 2017. Even so, given this improving environment, we anticipate that 2017 transactional volumes will be on a par with 2016 levels at up to US$650 billion.

Direct Commercial Real Estate Investment, 2006 - 2017

US$ billions

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017 (F)

800 700 600 500 400 300 200 100 0

Americas

EMEA

Asia Pacific

Global

Source: JLL, April 2017


12


Direct Commercial Real Estate Investment – Regional Volumes, 2015 - 2017 US$ billions

Americas EMEA Asia Pacific Total

Q4 2016

78 85 44 207

Q1 2017

58 52 25 136

% change Q4 16-Q1 17

Q1 2016

-25% -38% -43% -34%

61 51 25 137


-5% 3% 1% -1%

2015

314 267 123 704

2016

285 247 131 663

% change 2015-2016

-9% -8% 6% -6%


Direct Commercial Real Estate Investment – Largest Markets, 2015 - 2017 US$ billions

U.S. UK Germany Japan Canada France China Spain Sweden Hong Kong South Korea Australia Netherlands Singapore Italy Norway Czech Republic Mexico

Q4 2016

72.8 14.8 21.0 8.0 3.2 10.6 15.5 3.4 4.7 2.8 7.4 5.2 5.3 2.2 3.8 1.9 2.4 0.3

Q1 2017

51.2 15.8 11.2 11.1 5.3 3.8 3.2 2.9 2.8 2.6 2.6 2.4 2.1 2.0 1.9 1.8 1.4 1.0


-30% 6% -47% 38% 65% -64% -79% -15% -40% -6% -66% -53% -61% -10% -49% -2% -41% 217%

Q1 2016

58.5 16.9 8.5 9.6 2.6 3.6 3.1 2.2 2.8 3.6 2.7 3.4 1.6 0.7 2.3 1.8 0.6 0.0


-12% -7% 32% 16% 105% 5% 4% 31% 1% -27% -4% -28% 33% 189% -16% 4% 120% 3358%

2015

2016

293.7 91.9 50.0 34.0 14.9 31.5 27.7 9.7 11.1 12.0 8.0 21.4 9.4 7.0 8.2 11.4 2.3 2.4

266.2 58.1 55.4 33.7 14.1 29.7 34.3 10.4 12.7 10.4 16.0 18.7 11.3 9.4 10.1 6.8 4.2 2.1

% change 2015-2016

-9% -37% 11% -1% -5% -6% 24% 7% 15% -13% 99% -13% 20% 35% 24% -41% 85% -14%



13


Regions in focus Americas’ investment activity off 2016 pace but well-positioned for remainder of 2017 Regional investment in Americas’ real estate in Q1 2017 slipped a notch from the pace of early 2016 as transaction volumes in the region reached US$58 billion, representing a 5% decline on a year-on-year basis. Within the U.S., investment volumes in the first quarter approached US$51 billion, a decrease of 12% on Q1 2016 due to more selectivity in deploying capital among U.S. investors combined with segments of the market in which available supply for sale was more limited than it has previously been in this cycle. Elsewhere in the Americas, transactional activity in Canada of US$5.3 billion was double that of Q1 2016 levels, while both Mexico and Brazil experienced an impressive increase in investment volumes (to approximately US$1 billion and US$600 million respectively), albeit from exceptionally low levels of activity in the first three months of 2016. Brazil may be especially well-poised for further growth in investment throughout 2017 as investors anticipate a return to economic growth and stronger property demand conditions as well as lower interest rates by year-end. The commercial property asset class retains a very attractive risk-adjusted return profile in major markets across the region, with appealing yield premiums on offer and, depending on specific market dynamics, potentially outsized growth prospects as well. As investors continue to seek avenues for deploying ample amounts of capital that have been raised in recent years into the asset class, sales transaction volumes in the Americas will remain sturdy over the rest of 2017 and are projected to finish the year just modestly lower than 2016, with a potential downside of up to 5%.

London returns to top of global rankings in Q1 Transactional activity bounced back in London in Q1 2017, despite Brexit concerns, as it returned to the top position in the ranking of global investment destinations with investment volumes rising by 23% on last quarter and 41% on Q1 2016 to US$8.2 billion. Tokyo also saw volumes increase in Q1 to US$5.8 billion, more than double the level of a year ago. The U.S., however, continued to account for the majority of leading cities with New York, Los Angeles and Washington DC rounding out the top five positions and several markets registering strong increases over the same period last year, including Boston, San Francisco, Charlotte, Dallas and Houston.


14


Direct Commercial Real Estate Investment, Top 20 Cities, Q1 2017 London Tokyo New York Los Angeles Washington DC Boston Hong Kong San Francisco Vancouver Seoul Shanghai Silicon Valley Singapore Chicago Charlotte Mecca Dallas Houston Madrid Osaka

Americas EMEA Asia Pacific US$ billions 0

1

2

3

4

5

6

7

8

9


EMEA investment volumes stronger EMEA investment volumes in Q1 2017 came in at US$52.1 billion, which represents a 3% increase yearon-year. Excluding the UK, Q1 investment in the region grew 8% on the first three months of 2016. The main driver was once again the German market, where transaction levels were up 32% year-on-year, while France also registered a rise in transactional activity (of 5%) to US$3.8 billion. The UK market rebounded with a 7% increase on a relatively strong Q1 2016 (in sterling terms); however due to the strong dollar the market reported a 7% reduction in dollar terms.

CEE continues to be the region’s hotspot In continental Europe, volumes were propped up by Central and Eastern Europe (CEE), which saw investment activity rise in the first quarter by 28% year-on-year. The Czech Republic was the largest market, recording US$1.4 billion in Q1, with Poland and Hungary also registering healthy levels of investment. Meanwhile Russia recorded a decline of 38% year-on-year to US$767 million, but sentiment is improving with full-year investment is forecast to surpass 2016 levels. The Benelux also witnessed volumes increasing year-on-year (by 13%) mainly due to uplifts in the Netherlands (+33%) and Luxembourg (+185%). Q1 volumes in the Nordics were down 5%, with transaction activity up in Norway and Sweden (+4% and +1% respectively), while Finland and Denmark experienced decreases (of -53% and -40%). Southern Europe posted a 3% increase on a


15


strong Q1 2016. Spain was the only market to see growth (+31%), while Portugal and Italy registered declines (of -35% and -16%).

Transactional activity flat in the Asia Pacific region Investment volumes across Asia Pacific’s commercial real estate markets began 2017 at the same pace as a year ago with first quarter transaction levels coming in at US$25 billion, up 1% on the 12 months ago but down 43% on the previous quarter. The shortfall was largely confined to Australia and Hong Kong (where capital outflow restrictions impeded Chinese cross-border transactions), as well as South Korea. Japan and Singapore led the quarter. Cross-border investment in the region remained active in Q1 2017, accounting for 35% of total transaction volumes. Inter-regional purchaser activity dominated intra-regional this quarter, representing about 67% of cross-border purchaser activity.

Sentiment positive in Japan Japan recorded transaction volumes of US$11.1 billion in Q1 2017, up 16% year-on-year, led by real estate funds and J-REITs buyers. We expect that demand from Japan’s portfolio managers will continue to keep investment levels steady in 2017 as domestic pension funds look to increase investment allocations to real estate amid a low interest rate environment.

Cross-border interest remains strong in Australia Investment volumes in Australia came to US$2.4 billion in Q1 2017, down 28% year-on-year due to a shortage of product coupled with a lack of major real estate portfolio deals. We anticipate that volumes with be stable over the next 6-12 months as investor interest remains strong given the high market transparency levels and relatively higher yields on a regional level.

Domestic investors target China Tier 1 cities following outbound capital controls In China, cross-border buyers were active in the first quarter, acquiring core CBD office assets, retail malls and in niche sectors such as senior housing. Following the implementation of outbound capital controls, domestic buyers have been active locally in Tier 1 cities. Looking ahead, the investment market is likely to remain stable as domestic money will aim to invest locally following the capital outflow restrictions.


16


US$ billions

Direct Commercial Real Estate Investment – Quarterly Trends, 2007 - 2017 240

228 210

211

210

207

205 204 190 171

174

180

162

163

159

146

150 120 118

120

113

143

166

153 137

136

124

119 110 107

110 100

100

100

168 155

108

91

90 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 Q216 Q316 Q416 Q117

0

Americas

EMEA

Asia Pacific

Rolling Four-Quarter Average



17


Capital Values and Yields Yield compression slows in most markets The first quarter of 2017 has provided further evidence that the downward trend in prime yields is nearing its end. While Frankfurt (-30bps), Milan (-25 bps) and Sydney (-20 bps) continued to record double-digit basis points yield compression, in most major markets prime yields were unchanged in the quarter. In the U.S. there is widespread perception among domestic investors that yield compression for this cycle has concluded, particularly with respect to core assets in primary and several leading secondary markets. All leading U.S. prime office markets recorded a 10-20 bps yield decompression in Q1.

Deceleration in capital value growth Capital values for prime assets in 26 major office markets rose by 3.8% in the year to Q1 2017, decelerating from 4.4% for the full-year 2016 and 8.8% for the full-year 2015. Capital value growth is expected to slow further to around 3% by the end of the year. Milan and Sydney are likely to top the global ranking of prime office capital value growth in 2017, joined potentially by Moscow as its market emerges from recession.


18


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 2016 - Q1 2017

Beijing Hong Kong Mumbai Seoul Shanghai Singapore Sydney Tokyo

Q4 2016 - Q1 2017 Q1 2016 - Q4 2016

Basis point change -90

-70

-50

-30

-10

10

30

50

70


Prime Office Yields, 2007 - 2017 % 7.2

6.87%

Mean Prime Office Yields*

6.7 6.2 5.7

5.49%

5.2

4.72%

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 Q2 Q3 Q4 Q1 '07 '07 '07 '07 '08 '08 '08 '08 '09 '09 '09 '09 '10 '10 '10 '10 '11 '11 '11 '11 '12 '12 '12 '12 '13 '13 '13 '13 '14 '14 '14 '14 '15 '15 '15 '15 '16 '16 '16 '16 '17

50

30 10 -10 -30

Yield Compression (bps) *Across 21 major office markets Source: JLL, April 2017


19


Corporate Occupiers Corporate occupiers remain active, with business transformation driving portfolio change Corporate occupier activity continued to be high in Q1 2017, with robust levels of leasing across key global markets. Asia Pacific saw broadly stable leasing volumes with buoyant activity in markets including Delhi, Melbourne and Shanghai. Occupier activity in the region is expected to remain steady through 2017 with a trend of divergence increasingly apparent in market conditions. Leasing activity kept at healthy levels in Europe in the first quarter. The UK witnessed an increase in take-up despite continued elements of hesitation due to uncertainty around Brexit, and markets including Paris, Amsterdam, Hamburg and Munich contributed to a very busy quarter. Excluding the UK, European take-up reached a 10-year high in Q1. In the U.S., a tightening labour market and higher construction levels are contributing to a turning point in office market conditions. As new supply grows, there is a notable flight to quality, reflected in strong demand for new and high-quality space with occupiers spurning older, lower-quality stock in secondary locations.

Global focus on smart growth, agility and optimisation High levels of geopolitical uncertainty and macroeconomic volatility continue to concern CEOs but are not holding back growth plans. Corporate sentiment and business investment are still stable, and elevated cross-border M&A volumes globally are leading to churn and impacting real estate portfolios. Corporate occupiers are focused on increasing agility within both portfolios and the workplace in a quickly changing geopolitical environment where policy and regulatory shifts are directly impacting real estate portfolios. Companies are fixed on increasing flexibility in lease terms, and the growth of ‘flex space’, co-working and on-demand forms of space are apparent in many major markets globally. Corporate real estate (CRE) teams are also actively driving optimisation within portfolios in light of changing operational considerations. Examples of supply chain and manufacturing restructuring in North America, and of financial services redeployment in Europe, demonstrate the direct and rapid effect of shifting operating considerations on location decision-making. Yet this optimisation is not purely reactive. The use of enhanced labour analytics and forecasting to understand the impact of changing urban dynamics on corporate real estate locations is increasingly prevalent.

Open innovation and experiential real estate CEOs are concentrating on collaborative growth, which is leading to requirements for real estate to support innovation and collaboration. Experimentation and adoption of new types and formats of space, as well as an increase in the amount of shared, community or collaborative space within portfolios are all on the rise. We are seeing greater diversification within corporate real estate as organisations use the workplace as a tool to boost employee engagement as well as to attract and retain talent. COPYRIGHT © JONES LANG LASALLE IP, INC. 2017. All Rights Reserved

20


Already widely evident in retail portfolios, experiential real estate is beginning to transform office space. JLL data from 7,000 office users as part of our forthcoming Human Experience research indicates a significant potential for enhanced workplaces to improve employee effectiveness, and support happier, more engaged employees. These concepts are quickly gaining currency within forward-thinking CRE teams and are driving alignment with HR and corporate talent strategies.

Digital drive reshaping workforces Looking over the longer term, digitisation, Internet of Things (IOT) adoption and automation are some of the key trends impacting CRE strategy, team structures and processes. The digitisation process is not only reshaping the structure of industries and individual organisations, but is also changing real estate requirements. Automation and the growth of the contingent workforce are driving leaner, more dispersed organisational models. Moreover, CRE is undergoing a related transformation as the growth of IOT technologies within the workplace drive greater transparency of portfolio utilisation and performance.

Global Office Market Conditions Matrix*, 2017 - 2019

*Relates to conditions in the overall office market of a city. Conditions for prime CBD space may differ from the above. Source: JLL, April 2017


21


Office Markets Office Demand Dynamics Global office leasing activity remains firm Office leasing activity remains firm, with global volumes rising by 3% in Q1 2017 (year-on-year). The United States (+8% year-on-year), Western Europe (+10%) and Australia (+54%) each registered a robust uplift in activity during Q1. Among the emerging markets, China Tier 1 cities (+46%) also recorded a notable improvement on a year ago. Global leasing volumes for the full-year 2017 are predicted to broadly match the levels recorded in 2016. Momentum is expected to continue in the U.S. but at a more modest pace with a slight increase in take-up projected for the full-year. Europe and Asia Pacific, however, may struggle to maintain 2016 levels, with volumes forecast to fall modestly by up to 5%, although this hides marked divergence within regions.

Changing supply-and-demand dynamics in the United States Throughout the first quarter of 2017, the U.S. office market continued its gradual shift into a new phase. Spurred by rapidly rising business and consumer confidence, demand for quality space remains strong, but occupier expansion has been hindered by an increasingly tight labour market among other indications of a maturing cycle and net absorption slowed to only 0.1% (of inventory) during Q1, even as rents registered solid year-on-year growth.

Broadening expansion reaches most corners of the United States With expansion reaching nearly all geographies in the U.S., secondary and tertiary metro areas have become increasingly prominent contributors to U.S. net absorption. Phoenix, Austin, Charlotte, Louisville and Tampa all saw occupancy growth exceed 0.5% of inventory.

...but activity cools in leading U.S. gateways However, U.S. gateway markets, as well as some previously leading metro areas, have experienced a marked cool-down in activity, as minimal labour market slack, volatility in venture capital and oversupply concerns alter market dynamics. Nowhere is this more pronounced than the Bay Area, where San Francisco and Silicon Valley both recorded negative net absorption and rental declines on a quarterly basis. Other major markets also recorded drops in occupancy in Q1 after a long streak of gains, including Atlanta, Boston, Chicago and Philadelphia.


22


Eurozone take-up reaches a 10-year high Take-up in Western Europe in Q1 2017 was up 10% year-on-year, propelled by strengthening employment and corporate sentiment: ■

The robust momentum recorded in Paris throughout 2016 continued into Q1, with take-up 27% higher year-on-year; this made it the city’s strongest Q1 since the GFC.

■

Office market activity in Germany has continued apace. Given the exceptionally high take-up in recent years, some cities have started to see growth levelling out. However, Hamburg and Munich witnessed take-up increase by 48% and 39% respectively, pushing total Germany ‘Big 5’ Q1 take-up to the largest Q1 volume on record. Leasing volumes across Germany are likely to remain strong in 2017, although we expect a slowdown relative to the exceptionally high levels seen over the last 12-18 months.

■

London recorded a slower start to the year, with Q1 volumes down 30% year-on-year. It is evident that occupier activity is being held back by uncertainty surrounding Brexit. At the same time the number of active requirements has grown steadily, suggesting a ‘wait-and-see’ approach among occupiers.

Supply and demand dynamics neutral across Asia Pacific markets Overall leasing activity in Asia Pacific has been relatively stable, down 4% year-on-year in Q1 2017, but with a varied performance across the region. Financial and tech firms remain the most active sectors: ■

Australia continues to underpin take-up volumes in the region, with activity 54% higher yearon-year in Q1, led by strong broad-based demand in Melbourne.

■

Leasing volumes in China Tier 1 cities are still below the record levels of 2015, but activity was nonetheless reasonably robust in Q1. Volumes were up 46% year-on-year, boosted by demand in Shanghai. Demand was supported by financial institutions.

■

Volumes in India Tier 1 cities are also below the record 2015-2016 levels, although Delhi had a vigorous quarter, recording the region’s highest take-up at 220,000 square metres.

■

Elsewhere, Tokyo and Manila registered robust leasing activity.

We continue to expect regional leasing volumes to be marginally lower (by up to 5%) than in 2016, but there is more upside potential with encouraging signs early in 2017 that activity is improving in many areas.


23


millions sq m

Global Office Demand – Annual Gross Leasing Volumes, 2007 - 2017 45

42

Projection

39

36

33

30 2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

24 markets in Europe; 50 markets in the U.S.; 22 markets in Asia Pacific Source: JLL, April 2017

millions sq m

Global Office Demand – Quarterly Gross Leasing Volumes, 2012 - 2017 11

10

9

8

7 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413 Q114 Q214 Q314 Q414 Q115 Q215 Q315 Q415 Q116 Q216 Q316 Q416 Q117

24 markets in Europe; 50 markets in the U.S.; 22 markets in Asia Pacific Source: JLL, April 2017 COPYRIGHT © JONES LANG LASALLE IP, INC. 2017. All Rights Reserved

24


Office Supply Trends Global office vacancy rate stable at 11.9%, but trending upwards During the first quarter, the global office vacancy rate remained stable at 11.9%, but is projected to trend upwards during the remainder of 2017 as new office space comes on tap. Both Asia Pacific and the U.S. are likely to see higher vacancy rates by year-end, although the rate of increase should be relatively modest. Europe’s vacancy rate is expected to keep stable at around 8% for the rest of 2017.

Vacancy pressure builds in the United States For the first time since 2010, U.S. total vacancy rose in Q1 2017, up by 20 bps to 14.7%. Nearly all asset classes recorded an increase, led by CBD Class A properties which registered a third consecutive quarter of increase; but at 12.4% it remains far below the total vacancy rate. Driving these increases has been an uptick in completions, with 1.5 million square metres of deliveries during Q1 representing the largest volume of new supply this cycle, with even more completions set for Q2 and Q3 2017. Through to year-end 2018 the pace of completions will remain significant and in turn drive relocations to newer space and give-backs of second-generation blocks, in the process muting occupancy growth and gradually placing upward pressure on vacancy.

European vacancy edges up to 8.1% After vacancy decreased by 140 bps in 2015-2016, Q1 2017 recorded the first increase in European vacancy in two years. The slight increase was mainly caused by a rise in London (+80 bps to 4.9%), and the underlying trend on the continent is still downwards. In the Eurozone, the decline in the vacancy rate was particularly strong in Barcelona (-70bp to 8.3%), Amsterdam (-60bp to 8.3%) and Brussels (-40% to 9.0%). In Germany, Berlin and Munich now stand at 4.2%, the lowest levels in Europe. While development activity is set to increase across most of the ‘Big 5’ German cities, vacancy rates are likely to fall further before stabilising towards the end of 2017. In some European cities, space constraints in prime CBD pitches have meant that well-connected fringe / secondary locations are in high demand. Increased occupier mobility and spill-over into secondary areas (often supporting rental growth in these submarkets) was initially limited to cities such as London, Dublin and Munich, but it has now become more widespread. We expect completions to rise steadily throughout the year, with full-year 2017 office deliveries forecast to be 25% ahead of the five-year average. A similar development pipeline is projected for 2018, with the majority of the increase concentrated in London, Paris, Dublin, Berlin and Munich. European office vacancy is forecast to decrease to 7.9% in 2017, as higher completions are offset by solid leasing activity. Expansionary demand will keep vacancy rates on a downward trajectory across most of Western Europe, though London and Dublin will see a further increase.


25


Asia Pacific vacancy rate stable at 10.9% Vacancy rates continued to decline in many Asia Pacific markets during Q1, with Mumbai witnessing one of the largest quarterly falls. Vacancy remained below 5% in Bengaluru, Beijing, Hong Kong and Tokyo. Shanghai saw the largest jump in vacancy, rising by 4 percentage points due to significant supply additions. The Asia Pacific regional vacancy rate is predicted to push above 12% by the end of 2017, with Ho Chi Minh City, Jakarta and Singapore each expected to register a notable increase in vacancy.

Office development cycle nears end in Canada The Canadian office vacancy rate fell to 12% in the first quarter, as its current development cycle nears its end. Only 1.1 million square metres remains under construction nationally, a number that is expected to increase in the quarters ahead given the strength of the Toronto and Vancouver office markets, which are characterised by robust demand and very limited supply.

Development pipeline tests Mexico City The office market in Mexico City continues to hold up relatively well despite ongoing challenges in the form of a heavy new development pipeline, and overall vacancy in Q1 remained at 14%. Over the rest of 2017, upward pressure on vacancy is anticipated and rental rates should also decline modestly.

Tenant-favourable market persists in Sao Paulo The outlook for tenants in the Sao Paulo office market remains highly favourable. Rental rates continued to decline and the overall vacancy is still highly elevated at 24.6%. As the economy begins to turn the corner the market could take on a more neutral stance during 2018.


26


millions sq m

Global Office Completions, 2000 - 2019 U.S.

20

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 2019 (F) (F) (F) 24 markets in Europe; 25 markets in Asia Pacific; 50 markets in the U.S. Asia relates to Grade A only. Source: JLL, April 2017

Office Supply Pipeline – Major Markets, 2017 - 2018 Shanghai Mexico City Beijing Mumbai Singapore Tokyo Sao Paulo San Francisco Moscow London Dubai Hong Kong Seoul Paris Brussels Washington DC Milan Sydney Frankfurt Stockholm Madrid Boston Chicago Toronto New York Los Angeles

2017

2018

Completions as % of existing stock

0

5

10

15

20

25

30

35

40

Covers all office submarkets in each city. Tokyo – CBD - 5 kus Source: JLL, April 2017


27


Office Vacancy Rates in Major Markets, Q1 2017 Global 11.9% 30%

Americas 14.6%

25%

Europe 8.1%

Quarterly movement

Asia Pacific 10.9%

Increased Decreased Stable

20% 15% 10%

Mumbai

Shanghai

Seoul

Sydney

Beijing

Singapore

Hong Kong

Tokyo

Moscow

Milan

Madrid

Brussels

Frankfurt

Paris

Stockholm

London

Sao Paulo

Los Angeles

Washington DC

Chicago

Mexico City

Boston

New York

San Francisco

0%

Toronto

5%

Regional vacancy rates based on 62 markets in the Americas, 24 markets in Europe and 25 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, April 2017

Vacancy Rate (%)

Global and Regional Office Vacancy Rates, 2009 - 2017 18

17.9%

16

14.4%

14.6% Americas

14

12

11.9%

11.9% GLOBAL

10.9% Asia Pacific 10.3% 10

8.1% Europe Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017

8

62 markets in the Americas, 24 markets in Europe, 25 markets in Asia Pacific. All grades except Asia and Latin America (Grade A only). Source: JLL, April 2017


28


Office Rental Trends Rental growth maintains steady pace Annual rental growth for prime offices (across 26 major markets) accelerated in Q1 2017 to 3.0% (from 2.7% in Q4 2016). Rental growth is nonetheless expected to soften during the remainder of 2017 – to about 2% (on average) – as more markets seek to absorb a greater volume of new deliveries. Sydney (+28.9% year-on-year) and Stockholm (+20.8%) are the star rental performers, while Chicago (+10.4%), Hong Kong (+9.1%), Toronto (+8.4%), Madrid (+7.3%) and Milan (+6.1%) also recorded above average growth. Most major office markets are likely to remain in positive rental territory in 2017, with Sydney and Toronto set to top the global ranking for the full year. Beijing, London, Mexico City, Seoul, Sao Paulo, Shanghai and Singapore are expected to see a correction in prime rents over the next 12 months.

Newly-delivered prime space boosts U.S. market rents The raft of new office deliveries in the U.S. is playing a key role in driving rents, with Class A rents up 3.5% over the year in spite of increased vacancy. Heading into the remainder of 2017, we expect further rent increases as new space is added to inventory before supply overtakes demand during 2018 and the market begins to correct itself.

Rental growth continues apace in mainland Europe In Europe, prime rents rose by 2.7% year-on-year in Q1, outpacing the 10-year average of 1.2%. Excluding London, prime rental growth for the region was 4.3%, a clear indicator that large parts of the Eurozone are increasingly becoming more landlord-favourable. ■

In London, prime rents have declined by 8.3% since the EU referendum and further falls are expected by the end of the year as vacancy increases further.

■

Q1 rental growth continued in Southern Europe, where prime rents slowly but steadily ticked up. In Barcelona (+2.3%), Madrid (+1.7%) and Milan (+1.0%) prime rents moved up as the Grade A segment tightens and occupiers compete for the prime pitches.

■

Elsewhere in Europe, Berlin (+3.7%) and Stockholm (+3.2%) again recorded robust prime rental growth over the quarter, as supply in both markets tightens on the back of limited speculative development and healthy demand. Growth rates will most likely cool with rents now well ahead of previous peaks.

Buoyant leasing activity and limited development will continue to limit high quality space on offer, pushing rents up in the process. Excluding the UK, European office rental growth is forecast to come in at around 2.6% for the full-year 2017.


29


Asia Pacific rental growth edges up Asia Pacific rents increased by 3.1% in Q1 (year-on-year). Sydney continues to record the strongest growth. Rental decline accelerated in Jakarta, but held steady in Singapore as commitment rates on upcoming supply improved. In the first sign of recovery in a commodity-drive market, Perth returned to positive rental growth during the quarter.

Prime Offices – Rental Change, Q1 2016 - Q1 2017

Sydney Stockholm Chicago Hong Kong Toronto Madrid Milan Los Angeles Washington DC New York Tokyo Frankfurt Paris San Francisco Mumbai Shanghai Mexico City Boston Dubai Brussels Beijing Sao Paulo Seoul Moscow Singapore London -10

-5

0

Americas EMEA Asia Pacific % change

5

10

15

20

25

30

Based on rents for Grade A space in CBD or equivalent. In local currency. Source: JLL, April 2017


30


Rental change (y-o-y %)

Prime Offices – Rental Change, 2010 - 2017 10

9 8

7

8.0%

8.3%

6 5 4 3.7%

3

4.0%

2

2.7% 2%

1

1.5% 0.8%

0 2010

2011

2012

2013

2014

2015

2016

2017F

Prime office rental growth: unweighted average of 26 major markets. Source: JLL, April 2017

Prime Offices – Projected Changes in Values, 2017

Rental Values

Capital Values

10 - 20%

Sydney

Milan, Sydney, Moscow

5 - 10%

Dubai*, Toronto Hong Kong, Stockholm

Hong Kong, Frankfurt Toronto, Stockholm

0 - 5%

Milan, Madrid, Brussels Boston, Chicago, Los Angeles New York*, San Francisco Washington DC, Mumbai, Frankfurt Paris*, Tokyo, Moscow

Madrid, Brussels Mumbai, Dubai*, Boston, Los Angeles Chicago, New York* San Francisco, Washington DC Tokyo, Paris*, Beijing

0 - 5%

Seoul, Shanghai, Beijing Sao Paulo, Mexico City, London*

Shanghai, Seoul, Sao Paulo Mexico City, Singapore, London*

5 - 10%

Singapore

*New York – Midtown, London – West End, Paris – CBD, Dubai – DIFC. Nominal rates in local currency. Source: JLL, April 2017 COPYRIGHT © JONES LANG LASALLE IP, INC. 2017. All Rights Reserved

31


Prime Offices – Rental Clock, Q1 2017

Beijing San Francisco, Hong Kong Tokyo, Dallas Boston, Toronto

Shanghai

Los Angeles, Frankfurt, Prague

Houston

Stockholm New York, Chicago, Sydney

Rental Growth Slowing

Rental Values Falling

Paris Berlin, Madrid Johannesburg, Milan

Istanbul, Seoul, Singapore Mexico City

Rental Growth Accelerating

Rental Values Bottoming Out

London

Amsterdam Washington DC Delhi Mumbai Brussels

Sao Paulo, Warsaw Dubai, Moscow Zurich Americas EMEA Asia Pacific

The JLL Property Clocks SM

Based on rents for Grade A space in CBD or equivalent. U.S. positions relate to the overall market. Source: JLL, April 2017


32


Retail Markets Limited development pipeline supporting U.S. retail market The U.S. retail sector is undergoing a breath-taking pace of change with e-commerce penetration increasing inexorably and impacting a large number of segments. The volume of retail space that will be closed in coming years has grown, rising over 100% from 50 million square feet in 2015 to 103.3 million square feet in 2016. The number of announced store closures was down in 2016, however, many of these stores have larger footprints, such as JC Penney and Sears. This introduces a plethora of empty anchor space challenges for regional malls. In addition, changing demographics, shifting consumer tastes in favour of discounters and fast fashion and some sales loss to online sellers are also boosting apparel stores closures. Notwithstanding all of these challenges, the national retail vacancy rate is still declining and rental rates are now growing at a healthy clip. The saving grace continues to be a historically very small development pipeline. In aggregate, demand will continue to be strong enough to outstrip the net new supply into 2018.

Dominant retail locations remain in demand across Europe While retailers with larger store portfolios continue to right-size their portfolios, dominant retail locations now have a growing importance for consumer service and brand experience. High demand for the best space in Europe’s flagship locations has meant that prime rents on London’s New Bond Street rose by 4.8% over the quarter. With some retailers unwilling or unable to commit to prime rental levels, we are increasingly seeing them take space in adjacent locations. Areas previously not regarded as prime in London, Amsterdam, Brussels, Dublin, Paris, Milan, Stockholm and many of the leading German cities are experiencing stronger demand than ever. Looking forward, prime high street rents in Dublin, Amsterdam, Madrid, Hamburg and Dusseldorf as well as London are expected to see the most vigorous growth in 2017.

F&B leading the way in Asia F&B operators and children’s brands were the main demand drivers of retail demand in China’s major markets in the first quarter of the year, while in Hong Kong the primary sources of demand were local and international F&B brands along with mid-tier retailers. Retail sales performance in Singapore continued to be patchy in Q1 and occupier demand was weak, with many tenants still looking for early termination. Retailer performance in Sydney was varied across categories, with strong competition in the apparel category. A slow rental growth pattern was apparent across most of Asia Pacific in Q1. Chain-linked rental growth picked up in Shanghai, particularly in prime submarkets witnessing high footfalls. Sydney saw moderate rental growth with institutional landlords experiencing fewer cases of negative reversion on renewals, while rents were generally flat in Melbourne. In Hong Kong, further rental correction was evident for high street shops, amid a shift in tenant mix from luxury to mid/mass market operators.


33


Prime Retail – Rental Clock, Q1 2017 Paris, Beijing, New York Houston, San Francisco Boston

Washington DC Los Angeles, Tokyo London





Dubai

Madrid Milan, Shanghai Chicago

Hong Kong Singapore

Mumbai, Sydney Delhi

Berlin, Moscow

Americas EMEA Asia Pacific


Prime Industrial – Rental Clock, Q1 2017 Amsterdam, Hong Kong San Francisco New York, Dallas Frankfurt, Tokyo Beijing Philadelphia, Shanghai Chicago, Los Angeles Houston Atlanta



Boston, London, Stockholm Singapore Sydney, Milan



Moscow, Istanbul

Madrid

Paris, Warsaw Americas EMEA Asia Pacific


Relates to prime space. U.S. positions relate to the overall market. Source: JLL, April 2017


34


Industrial Markets U.S. industrial vacancy reaches 17-year low Responding to healthy consumer spending and growing e-commerce sales, total net absorption in the U.S. warehouse and distribution market continues to outpace new deliveries. National vacancy declined by 30 bps from three months ago to 5.3% and now stands at a new cyclical low with vacancy rates falling in nearly three-quarters of U.S. markets. The construction pipeline is still growing, led by a significant increase (29% from Q4 2016) of construction activity of build-to-suit properties. Pre-leasing rates for speculatively-built buildings rose by 320 bps to nearly 27%, a sign of continued healthy demand from tenants. As companies continue to absorb space, competition for the most optimal space remains fierce and as a result developers become further emboldened.

Continued strong development activity needed to fulfil demand levels in Europe European occupational warehouse demand suggests another robust quarter of activity in Q1 2017 and JLL’s latest Supply Chain Activity Index points to overall take-up growth of 6% year-on-year. The continued restructuring of supply chains, including that in response to growing e-commerce, is expected to have a positive impact on occupier demand and we see further rising upward pressure on rents with the majority of European markets anticipated to record rental increases throughout 2017. Total development activity reached a new peak at the start of 2017 and there are no signs of an immediate slowdown in new development. With the majority of new supply remaining firmly build-tosuit driven, the European aggregate vacancy rate is projected to edge down further throughout 2017 to reach around 5% at the end of the year. Low levels of supply particularly in and around major cities could lead to a rising supply-demand imbalance and we predict growing intensification of land usage around the largest European cities, in particular London and Paris (including select development of multi-storey ramped warehouses).

Demand in Asia Pacific continues to stem from 3PLs and e-commerce firms Strong demand from e-commerce retailers and 3PLs continued in Tokyo in the first quarter while wholesale trade and 3PLs remained broadly active in Sydney. Against mixed trade data in Hong Kong, as most 3PLs as well as retailers who were previously active in expansion adopted a wait-and-see attitude in Q1. Take-up of business park space in Singapore focused on existing and recently completed premises given the lack of new completions during the quarter. Average rents across the region were flat on the previous quarter. Sydney showed the strongest rise, while warehouse rents fell in Hong Kong. COPYRIGHT © JONES LANG LASALLE IP, INC. 2017. All Rights Reserved

35


Hotel Markets Continuing resilience in the hospitality sector While uncertainty carries on in 2017 with the upcoming elections in the UK and Germany, ongoing Brexit negotiations and U.S. interest rate increases, the outlook for the travel and tourism industry is positive with forecasts for higher growth, at 3.8% (in terms of direct GDP), and the industry appears to have a greater ability to absorb uncertainty than in the recent past. This optimism is supported by encouraging hotel operating performance at the start of 2017. All three regions achieved annual RevPAR growth over the February 2017 year-to-date period with Asia Pacific posting the highest uplift of 2.9%, while the Americas saw a 2.3% increase and Europe remained relatively static with a minimal 1.1% rise.

Hotel transaction volumes slow by 5% in Q1, but expected to pick up in H2 The international hotel investment market ended Q1 on a cautious note, with transaction volumes closing the quarter at US$11 billion, down 5% compared to the same period last year. Asia Pacific posted the largest growth of 7%, thanks to strong deal flow in Hong Kong, which got off to a fast start in 2017 with five single-asset transactions worth a combined US$940 million. The Americas grew 4% to US$5.9 billion as a 392% increase in transaction volumes in Canada over the same period in 2016 offset an 18% decrease in the U.S. Q1 volumes in EMEA fell 20% year-on-year to US$3.6 billion as investors take a conservative approach due to the heavy election year, despite Germany registering a 26% annual uplift in volumes to US$1.1 billion. Investor interest remains high and activity is expected to pick up in the latter part of the year.

Global Hotel Investment Volumes, Q1 2016 - Q1 2017 US$ billions

Americas EMEA Asia Pacific Total

Q1 2016

5.7 4.5 1.4 11.6

Q1 2017

5.9 3.6 1.5 11.0


4% -20% 7% -5%


The United States continues to be the top market for transaction activity with volumes totalling US$4.5 billion in Q1 2017, albeit this was 18% lower than the same quarter last year. Positive factors which will have more bearing as the year advances include the return to market of the domestic REITs, an abundance of equity and healthy debt capital markets. Public REITs accounted for 25% of acquisitions by volume in the quarter, compared to 10% in Q1 2016.


36


Germany sat firmly in second place in Q1, reporting a 26% year-on-year uplift in deal volumes to US$1.1 billion, of which 75% were single-asset sales. Hamburg, Berlin and Munich were the top three investment hotspots, each registering deal volumes of over US$100 million. Domestic investors dominated the market, accounting for around 90% of total volumes. A number of properties traded in Q1 are still under construction, demonstrating investor confidence in the future of Germany’s economy. Hong Kong and Canada joined the top league in Q1 2017. Hong Kong has not had any major investment activity after the US$1 billion sale of InterContinental Hong Kong in 2015 but got off to a fast start in 2017 with five single-asset transactions worth a combined US$940 million. Buyers were mostly domestic, with one mainland Chinese investor. Asian investors dominated the Canadian hotel investment market in Q1 2017, which reported a total deal volume of US$870 million. The Canadian travel and tourism industry has been booming recently and the number of overnight travellers is forecast to grow 3% in 2017, supported by the favourable Canadian currency compared to the U.S. dollar. The United Kingdom reported a total of US$818 million in hotel investment in Q1 2017, down 26% on the same period last year. London is still the centre of attention, accounting for over 80% of transactions despite stock being tightly held. The UK continues to appeal to investors from both home and abroad, with North American investors the most prominent source of overseas capital. The UK has benefited from a weaker currency and received 16% more international visitors (year-on-year) in the three months to January 2017.

US $ billions

Hotel Transactions: Top 5 Countries, Q1 2017 6 Q1 2016

Q1 2017

4

2

0

United States

Germany

Hong Kong

Canada

United Kingdom

*Excludes multijurisdictional portfolio transactions Source: JLL, April 2017


37


Chinese capital – increasing allocation to the hotel sector China remained the largest exporter of outbound hotel capital in Q1 2017, with 86% of its hotel purchases located in North America. Chinese investors have quickly become a key source of international capital in the sector over the last few years, which is evident through an increased investment allocation into hotels. In 2011, hotel transactions only accounted for 5% of total outbound real estate investment from China, but this increased to 23% in 2016 due to a number of high-profile deals. Looking forward, there might not be a repeat of big-ticket transactions due to tighter capital controls imposed by the government; however, hotels will definitely continue to attract a larger share of Chinese outbound investment due to their desire for higher yields and vertically integrated approach to travel and tourism.

Chinese Outbound Real Estate Investment by Sector, 2011 - 2016

100% 80%

60% 40%

20% 0%

2011

2012 Hotel

Industrial

2013 Mixed-Use

2014 Office

2015 Other

2016

Retail



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Residential Markets Decelerating expansion in U.S. rental apartments as supply challenges persist National absorption levels in the U.S. multifamily market slid 40 bps to 1.1% of inventory at the end of 2016. While this figure has softened from the peaks of 2014 and 2015, the year-end figure matches annual gains in 2012 and 2013 – an arguably more impressive figure in light of the now growing competition from new construction in the for-sale housing market. A dozen markets saw absorption gains at or above 2% of their respective inventories for 2016 driven by Sunbelt markets, ranging from Orlando’s 2.0% to Charlotte’s 4.5% rise. Completions in 2016 nudged up 10 bps to 1.5% of inventory, the highest level since 2007. Despite this gradual increase in deliveries, only six markets delivered in excess of 3% of their inventory. National annual rental growth softened 160 bps from the previous year to 3.3% at year-end 2016. This marks the sixth straight year of rent growth in excess of 3% nationally, yet this was the weakest showing since 2013’s 3.2% increase. Rent growth is broadly expected to decelerate further throughout 2017 and into 2018.

UK institutional investment market continues to expand UK residential markets continued to defy post-Brexit expectations during Q1 2017, with annualised price growth of 4%-5%. London price growth continued to decelerate from the double-digit pace of a year ago, although even prime London prices posted a modest uptick in values. This improvement in prime values signals a floor under the re-pricing of the past 18 months, post stamp duty reforms and the EU referendum decision, with expectations that the new-build market will see values stabilise over 2017 after price falls of -4% last year. Volumes are subdued, particularly in prime markets, but a weak sterling is supporting stronger international demand so far in 2017. The institutional investment market is still growing, with forward-funding deals remaining the most prominent access route to future stock. There continue to be new entrants from a wide range of international and domestic firms. Structured partnerships with development capacity will play a key role in 2017 activity as investors seek to secure a future pipeline of assets.

Transactional activity increasing in Germany Around €3.7 billion of residential properties and portfolios changed hands in Germany in Q1 2017, 75% higher than the same period last year. Increased activity was supported by a significant rise in prices, with investors paying an average of over €130,000 per unit for residential properties in the quarter, compared with just €95,000 12 months ago. A large number of forward deals contributed to the increase in pricing, accounting for almost 30% of transaction volumes in the first three months (compared to a five-year average for first quarters of 10%).


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Although the identification of potential investment targets in Germany is not always straightforward, given the current market situation of low supply but high liquidity, the volume of transactions in 2017 is anticipated to be much higher than in 2016. The trend set in the first three months will continue and transaction activity of approximately €13-17 billion could be achievable by the end of the year.

Significant investor demand in the Netherlands despite limited supply Investor demand remained high in the Netherlands in the first quarter of 2017, with the main cities in the Randstad conurbation being the primary target of investor capital. However, investment opportunities in the traditional residential sector, as well as in alternative asset classes such as student housing, are becoming increasingly scarce in the most sought-after locations. Investors are slowly widening their horizons and looking at other geographies as well. The owner-occupier market faces comparable challenges to the investment market. With supply in major locations decreasing rapidly, it is increasingly difficult for those in search of a home to find suitable product. This continues to result in price increases, although minor upward corrections in interest rate levels may quickly lead to houses touching the boundaries of affordability in the owneroccupier sector in the main cities. Other locations on the other hand are now increasingly experiencing a pick-up in market activity, with both the number of transactions as well as the average transaction price growing.

Institutional investment market remains active in France The residential investment market continues to perform well in France, following what was a strong transactional performance of €2.5 billion in 2016. With around €600 million of traded institutional product in Q1 2017 there remains robust interest in acquiring existing residential stock, particularly in the Greater Paris region. Despite a lack of tradable stock across the country, long-term investors and social landlords were active investors over the quarter, led by Primonial and Action Logement.

Housing market recovery continues in Spain The housing market in Spain is continuing its positive trend, with transactions recorded in cities including Bilbao, San Sebastian, Valencia, Seville and Malaga as well as Madrid and Barcelona. This underlines a further recovery in the housing market as well as the large volume of active capital. Residential capital values and rents are maintaining their upward trend. A significant amount of development taking place in the Madrid and Barcelona city centres is aimed at the higher end of the buyer market and is not helping to alleviate overall market demand. Combined with a lack of development land this should ensure values continue to increase over the short to medium term.


40


International capital driving price growth in Portugal The Portuguese residential market continued to experience strong price growth in the first quarter of 2017. With supply of newly available housing being taken up at a fast rate, there is a shortage of product at the medium to high end of the supply spectrum. Demand in the upper segment of the market and in city centres is still driven primarily by international capital, while strong rental growth was registered in Q1 in Lisbon and city centre locations due to a lack of available product.

Policy restrictions introduced in China; but relaxed in Singapore Further policy restrictions were introduced in many cities in China during Q1 2017, including refined definitions for first and second-time home buyers and higher down payments, and the tight policy stance continued to impact sales volumes in China’s Tier 1 markets. In Singapore, the government moved in the opposite direction by slightly relaxing cooling measures in March, cutting sellers’ stamp duty and easing Total Debt Servicing Rules. Market sentiment improved further in the city-state with sales volumes in prime areas slightly higher than a year earlier despite the absence of new launches. Regardless of the stamp duty in Hong Kong being raised to 15% in November and growing expectations that interest rates will rise, sales activity gathered pace as more developers launched units onto the sales market. Many wealthy first-time buyers purchased multiple units on one sales agreement in order to avoid the stamp duty. However, the government closed this loophole in midApril, making first-time buyers of multiple flats subject to a 15% stamp duty.


41


Key Investment Transactions in Q1 2017 Europe, Middle East and Africa

Sector

Sales price US$m

Country

City

Property

Denmark

Copenhagen

Copenhagen Hotel Marriott Hotel

141

Investors ATP Real Estate and PensionDanmark have entered into a JV agreement to acquire the five-star hotel from investment fund Solstra Capital Partners.

Finland

Helsinki

Kamppi Shopping Centre

Retail

266

TH Real Estate has acquired half of the shopping centre, which has a combined 36,000 sq m of retail and leisure space, from Barings Real Estate Advisers.

Multiple

Multiple

Generator Hostels Portfolio

Hotel

480

Patron Capital has sold its pan-European portfolio of 14 properties to Queensgate Investments.

Norway

Multiple

Esso Portfolio

Retail

284

DCC has acquired a network of Norwegian Esso petrol stations. NorgesGruppen will continue to operate the shops in the stations.

Spain

Madrid

Xanadu

Retail

565

Ivanhoé Cambridge has sold the shopping centre to Intu Properties.

Spain

Madrid

Four Seasons Madrid Hotel (50% Stake)

Hotel

125

Mohari Limited has acquired a 50% stake in the five-star hotel from OHL Desarrollos.

Saudi Arabia

Mecca

JODC- Makkah Mixed

1,600

Jabal Omar Development Company (JODC) has sold a fourproperty portfolio to Alinma Investment Company. The sale comprises three hotels (Conrad Makkah, Makkah Hilton, Hyatt Regency Makkah) and a shopping centre (Al Khalil).

UK

London

Leadenhall Building

Office

1,583

Britsh Land and Oxford Properties have sold their full stakes in the ‘Cheesegrater’ building (84,000 sq m) to CC Land.

UK

London

Rathbone Square

Office

539

Great Portland Estates has sold 39,000 sq m of mixed-use space to WestInvest Gesellschaft für Investmentfonds and Deka Immobilien Investment. The office portion comprises six floors of large, regular Grade A office space with shared and private roof terraces.

UK

London

One Kingdom Street

Office

362

CC Land has acquired the West End landmark from TH Real Estate.

UK

London

The Ampersand Building

Office

322

Peterson Group has sold 6,200 sq m of Grade A office accommodation arranged over four upper floors to Emperor Group.


Comments

42


Sales price US$m

Country

City

Property

Sector

Comments

UK

London

DoubleTree London Westminster

Hotel

236

Westmont Hospitality Group has completed the acquisition of the four-star hotel from The Blackstone Group.

UK

Multiple

Brockton Capital Portfolio

Retail

310

Tristan Capital Partners has purchased a portfolio of nine retail parks from a fund advised by Brockton Capital. The combined parks comprise a total of around 111,500 sq m of space.

Asia Pacific

Country

City

Property

Sector

Sales price US$m

Australia

Canberra

50 Marcus Clarke Street

Office

243

CIMB-TrustCapital Advisors, a JV fund between Malaysian bank CIMB's real estate unit and Singaporebased TrustCapital Advisors, has divested the office building to Mirae Asset Global Investments. The asset is reported to have traded at a record 5.75% yield which would help reset values across the Canberra market.

Australia

Melbourne

World Trade Centre

Office

203

A consortium comprising Abacus Property Group, KKR and Riverlee Group has sold the three-tower complex on the north bank of the Yarra River to Ouson Group. The deal was completed on a yield of around 6.5%.

China

Beijing

Pretty Shopping Centre

Retail

218

Alltronics Holdings Limited, a Hong Kong-based electronics manufacturer, has purchased the shopping centre from Bonroy International for about RMB 1.5 billion.

China

Shanghai

Silver Court

Mixed

479

Z-River Private Equity (Zhongrong Trust) has purchased the mixed-use complex from Mapletree Investments. Located in the CBD, it comprises 28 floors of serviced apartments, 16 floors of office space and a five-floor retail podium.

China

Shanghai

Puxi Central Park

Office

199

BlackRock has purchased the office building from Hong Kong Shanghai Alliance for RMB 1.4 billion. The deal was completed on a yield of around 3.6%.

China

Shanghai

Baolong Tower

Office

189

Ascendas-Singbridge has acquired the office tower from AEW Capital for about RMB 1.3 billion. It intends to rename and upgrade the 2004 vintage Grade-B office asset.


Comments

43


Country

City

Property

Sector

China

Shanghai

Grace Land Hotel International Hotel

Hong Kong

Hong Kong

Newton Place Hotel

Hong Kong

Hong Kong

Hong Kong

Sales price US$m

Comments

89

The hotel has been sold to Hong Kong-based investment fund Infrared NF Investment Advisers Limited.

Hotel

296

Stan Group, a Hong Kong-based property development company, has purchased the 598-room hotel from Henderson Land Development. It is located in the Kwun Tong District and first opened its doors in 2007.

J Plus Hotel

Hotel

219

CSI Properties, a Hong-Kong based property developer, has divested the hotel to Henry Group Holdings. The net proceeds from the sale will be used to finance CSI’s new projects in Hong Kong and mainland China.

Hong Kong

Zung Fu Aberdeen Garage

Industrial

201

Zung Fu, the exclusive retailer of Mercedes-Benz automobiles in Hong Kong and Macau, has sold the 10storey industrial building located at Wong Chuk Hang to Empire Group Holdings. The maximum gross floor area is about 15,000 sq m and the site area can be redeveloped into an office or hotel project.

Hong Kong

Hong Kong

Rosedale Hotel Hong Kong

Hotel

193

BOCGI Commercial Realty Management has sold the hotel to an unknown Chinese high-net-worth individual for HKD 1.5 billion.

Japan

Chiba

Sunroute Plaza Tokyo

Hotel

236

Orix JREIT has acquired the hotel located within Tokyo Disney Resort from its parent Orix Group. The hotel's current room occupancy level is at 95%.

Japan

Multiple

CapitaLand Portfolio

Mixed

437

CapitaLand has bought a portfolio of four office and retail properties in the Greater Tokyo Area for JPY 49.7 billion from Värde Partners. The portfolio comprises two office buildings in Yokohama, one office building in Tokyo and one shopping mall in Saitama. Following the completion, CapitaLand has increased its total asset value in Japan to about US$1.8 billion.

Japan

Tokyo

DBC Shinagawa Tokyu Building

Office

165

Activia Properties has purchased the office asset from Tokyu Land Corporation. The deal was completed on a net yield of about 4.3%.

Japan

Yokohama

Mitsubishi Heavy Industries Yokohama Building

Office

528

Mitsubishi Heavy Industries has sold the 33-storey office building to Hulic Co., Ltd. Mitsubishi will continue to occupy the building as the main tenant. The building was completed in 1994 and has a total floor area of about 100,000 sq m.


44


Sales price US$m

Country

City

Property

Sector

Comments

Malaysia

Kuala Lumpur

Renaissance Kuala Lumpur Hotel

Hotel

171

Canali Logistics has acquired the 35-storey hotel from IGB Corporation Berhad. It has a GFA of about 12,340 sq m.

Singapore

Singapore

GSH Plaza

Mixed

565

Fullshare Holdings, a Hong Kong-listed developer and provider of healthcare products and services, has acquired the property from a local consortium. The 28storey office building property has been refurbished to include 259 strata office units and two floors of retail space comprised of 21 shops.

Singapore

Singapore

PwC Building

Office

528

Canadian insurer Manulife has purchased the 28-storey office building from DBS Group Holdings. Completed in 1999, the Grade-A office building has a total lettable area of about 33,000 sq m and is currently leased by PwC, which is vacating to Marina One with Manulife likely to move in to take up the vacant space.

Americas Country

City

Property

Sector

Sales Comments price US$m

Brazil

Embu das Artes

BRF Foods Embu

Industrial

48 Global Logistic Properties (GLP) has purchased this 30,000 sq m light industrial asset at an estimated 5.1% initial yield from BRF Foods.

Brazil

Sao Bernardo do Campo

Galpao SBC

Industrial

83 Global Logistic Properties (GLP) has acquired the over 47,000 sq m industrial asset from BR Properties.

Brazil

Rio de Janeiro

Windsor Atlantica Hotel

Hotel

Canada

Montreal

Sears

Industrial

Canada

Toronto

Dominion Public Building

Office

208 Canada Lands Company has sold the nearly 34,000 sq m CBD office asset to Larco Hospitality.

Canada

Vancouver

Oakridge Centre

Retail

170 bcIMC has purchased the approximately 53,000 sq m retail property from Caisse de dépôt.

Mexico

Multiple

Grupo Hotelero Santa Fe

Hotel

120 Grupo Hotelero has acquired two hotels in Los Cabos and Nuevo Vallarta with a total of 933 rooms. The group plans to expand and rebrand the two hotels into Krystal Grand.


191 The Blackstone Group has completed the acquisition of hotel with plans to convert and rebrand it. 38 Sears Holdings Corp. has sold the roughly 152,000 sq m industrial asset to Montoni.

45


Country

City

Property

Sector

Sales Comments price US$m

Mexico

Multiple

Terrafina Main Industrial

Industrial

381 The 45-property industrial portfolio has been acquired by Terrafina.

Mexico

Multiple

Multicity Industrial Portfolio

Industrial

81 A joint venture of FINSA and Walton Street has purchased this 11-asset industrial portfolio.

U.S.

Boston

10 Saint James Ave and 75 Arlington St

Office

U.S.

Dallas/Fort Worth

Logistics Crossing I

Industrial

U.S.

Las Vegas

Town Square Retail

389 TH Real Estate has purchased the approximately 107,000 sq m retail centre at a reported 5.25% initial yield from Five Mile Capital Partners.

U.S.

Los Angeles

Glendale Plaza

179 DivcoWest has acquired this approximately 49,000 sq m Glendale office property at a reported 6.0% initial yield from PGIM Real Estate.

U.S.

Los Angeles

W Hollywood Hotel Hotel

U.S.

Northern New Jersey

350 Starke Road

Industrial

73 CIM Group has sold the 31,000 sq m warehouse property located in Carlstadt to Bentall Kennedy.

U.S.

Portland

Congress Center

Office

85 American Realty Advisors has purchased the approximately 34,000 sq m CBD office asset from Shorenstein.

U.S.

San Francisco

211 Main St

Office

313 Blackstone acquired this roughly 35,000 sq m office property from CIM Group in March.

U.S.

San Francisco

Macy's Men's Retail Store

Office


673 Mori Trust has purchased this two-building, nearly 77,000 sq m office asset from Liberty Mutual.

58 PNC Realty Investors has acquired this 62,000 sq m Grand Prairie warehouse asset from Weeks Robinson Properties.

219 Host Hotels & Resorts has acquired the 305-room hotel from HEI Hotels & Resorts.

250 Morgan Stanley has purchased the over 24,000 sq m asset located on Stockton Street from Macy's.

46


Illustrative Office Occupational Transactions in Q1 2017 Europe Floorspace sq m

Country

City

Property

Tenant

Industry Sector

Germany

Berlin

Vattenfall

n/a

Public Administration

47,000

Germany

Hamburg

Überseering

University Hamburg

Education

19,700

Germany

Munich

Campeon

Infineon

ITES

15,000

Germany

Munich

Business Campus München: Garching

Deutsche Pfandbriefbank

Banking & Financial Services

13,400

Germany

Stuttgart

Messe Airport Center

Mercedes-Benz

Automotive

50,000

Russia

Moscow

Avrora BP

Yandex

ITES

10,300

Russia

Moscow

Silver City BC

Toyota Bank


3,030

France

Paris

‘Duo’ - boulevard Masséna

Natixis


89,700

France

Paris

‘Influence’ - rue Albert Dhalenne

Région Île-de-France


33,000

France

Paris

44, boulevard de Vaugirard

Crédit Agricole Assurances


25,000

France

Paris

‘West Park’ - place Marcel Paul

Groupama


18,000

France

Paris

‘Cœur Défense‘ - 100-110 esplanade du Général de Gaulle

Orange Business Services

ITES

17,500

UK

London City

100 Bishopsgate, EC2

Freshfields Bruckhaus Deringer

Legal Services

23,319

UK

London City

Angel Building, EC1

Expedia

ITES

11,520

UK

London West End

80 Charlotte Street, W1

Arup

Business Services

12,412

UK

London West End

84 Eccleston Square, SW1

The Office Group

Real Estate


6,378

47


Asia Pacific Floorspace sq m

Country

City

Property

Tenant

Industry Sector

Australia

Melbourne

311 Spencer Street

Victoria Police


60,000

Australia

Melbourne

Collins Square Building 5, 735 Collins Street

Transurban

Construction

16,000

Australia

Melbourne

Casselden Place 1, 2-88 Lonsdale Street

Department of Treasury and Finance


9,270

China

Beijing

WFC

Airbnb

ITES

2,516

China

Shanghai

Taiping Finance Center

CIB Fintech


3,060

China

Shanghai

Sinar Mas Center

Deheng Law Offices

Business Services

2,040

Hong Kong Hong Kong

Times Square

South China Morning Post

Media

6,420

Hong Kong Hong Kong

One Island East

Freshfields Bruckhaus Deringer

Legal Services

3,772

India

Delhi

Candor TechSpace SEZ, Noida

Sapient

Business Services

3,484

India

Mumbai

Enam Building

WeWork

Real Estate

13,239

Japan

Tokyo*

Marunouchi 3-2 Project

Deloitte Tohmatsu

Business Services

30,000

Japan

Tokyo*

Uchisaiwaicho Project

Sony Bank


6,300

Malaysia

Kuala Lumpur

Integra

Huawei

ITES

3,345

Singapore

Singapore

UE Square

Kao

Retail

1,816

Singapore

Singapore

Suntec City Tower 2

Catalyst Media Group

Business Services

South Korea

Seoul

Tower 730 in Jamsil

Coupang

ITES

Country

City

Property

Tenant

Industry Sector

Brazil

Rio de Janeiro

Teleporto

IPHAN - Instituto do Patrimônio Histórico e Artístico Nacional


11,260

Brazil

São Paulo

Parque da Cidade Corporate - Torre Sanofi Aventis Sucupira

Heathcare Services

11,952

Canada

Calgary

Intact Place


15,583

*JLL

179 35,690

estimate

Americas


Intact Insurance

Floorspace sq m

48


Floorspace sq m

Country

City

Property

Tenant

Industry Sector

Canada

Calgary

Fifth Avenue Place

WSP

ITES

11,613

Canada

Toronto

Brookfield Place

Aird & Berlis

Business Services

10,219

Mexico

Mexico City

Sania Corporativo

Bosch

ITES

12,484

Mexico

Mexico City

Artz Pedregal

Janssen México

Pharmaceutical

U.S.

Chicago

515 N State

Outcome Health

Healthcare Services

35,772

U.S.

Dallas

Cypress Waters Boulevard

Brinker International

Restaurants & Hospitality

20,095

U.S.

Houston

City Place Drive

HP

ITES

35,117

U.S.

Nashville

Ovation

Mars Petcare

Consumer Goods

20,810

U.S.

New York

4 World Trade Center

Spotify

ITES

35,117

U.S.

New York

28 Liberty Street

NY State Attorney General


32,052

U.S.

RaleighDurham

3040 Carrington Mill Boulevard

INC Research

Heathcare Services

19,923

U.S.

San Francisco Warriors Development

Uber

ITES

26,803

U.S.

Washington, DC

Nestle

Consumer Goods

19,138

1812 N Moore Street

9,753

Global Real Estate Health Monitor Definitions and Sources Metro Area GDP: Change in Real GDP. Metropolitan Area Projection, 2017. Source: Oxford Economics City Investment Volumes: Direct Commercial Real Estate Volumes. Metro Area Data. Rolling Annual Total in USD Billion. Source: JLL City Investment Volumes Change: 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 (2017-2018) as % of Existing Stock. Source: JLL


49

For further information contact:

Jeremy Kelly

Matthew McAuley

Director

Senior Analyst

Global Research

Global Research

[email protected]

[email protected]

About JLL

About JLL Research

JLL (NYSE: JLL) is a leading professional services firm that specialises in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2016, JLL had revenue of $6.8 billion and fee revenue of $5.8 billion and, on behalf of clients, managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $136 billion. At year-end 2016, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of more than 77,000. As of December31, 2016, LaSalle Investment Management has $60.1 billion of real estate under asset management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.

JLL’s research team delivers intelligence, analysis and insight through market-leading reports and services that illuminate today’s commercial real estate dynamics and identify tomorrow’s challenges and opportunities. Our more than 450 global research professionals track and analyze economic and property trends and forecast future conditions in over 60 countries, producing unrivalled local and global perspectives. Our research and expertise, fueled by real-time information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful strategies and optimal real estate decisions.

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