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A P R I L 2 018
European Real Estate Market
European Real Estate Market - April 2018
2Duff & Phelps Real Estate Advisory Group
The European Union
M AC R O E C O N O M I C OV E R V I E W
• The stronger cyclical momentum in
Europe and the positive unexpected rise
of global trade are supporting the
European Union (EU) economies
transition from recovery to expansion.
• EU GDP data reported by the
International Monetary Found (IMF)
have grown, and according to European
Commission (EC), EU economies are
estimated to increase from 2.1 to 2.3%
for this year.
• Inflation in the EU reached 1.7% in
2017, and is forecasted to grow in
2018. However, it is expected to slightly
decrease in 2019 (1.8%).
• If short-term economic growth exceed
expectations, in the medium-term, high
global asset prices could be vulnerable
to a re-assessment of risks and
fundamentals.
• The outcome of Brexit negotiations
remains uncertain and geopolitical
tensions/protectionist polices are main
threats for EU economies.
European Union (28) (Billions U.S. Dollars) European Union (28) (% change)
0.0
5000.0
10000.0
15000.0
20000.0
25000.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2014
1.8
2015
2.3
2016
2.0
2017**
2.4
2018**
2.3
2019**
2.0
2020*
1.8
2021*
1.7
2022*
1.7
European Union GDPU.S. Dollars (Billion) (% change)
* IMF forecast
** EC Winter 2018 forecast
Source: Duff & Phelps REAG R&D on IMF European Commission (EC) data
-0.5
0.0
0.5
1.0
1.5
2.5
2022*2021*2020*2019*2018*2017*20162015
2.0
Inflation (average consumer prices, % change)
0.00.2
1.7**1.9** 1.8**
1.9
2.0 2.0
European Union (28) Advanced Economies
* IMF forecast
** EC Winter 2018 forecast
Source: Duff & Phelps REAG R&D on IMF European Commission (EC) data
European Real Estate Market - April 2018
3Duff & Phelps Real Estate Advisory Group
The European Union
R E G I O N A L C O M P E T I T I V E N E S S• According to the European Commission
(“EC”), regional competitiveness is the
‘ability of a region to offer an attractive
and sustainable environment for firms
and residents to live and work.’
• The tool used for measuring and
assessing the competitiveness at
regional level in the EU is the Regional
Competitiveness Index (RCI).
• The factors which determine RCI are:
Basic dimension (institution,
macroeconomic stability, infrastructure,
health and basic education), Efficiency
dimension (higher education and
lifelong learning, labour market
efficiency and market size) and
Innovation dimension (technological
readiness, business sophistication and
innovation).
• The RCI shows a more polycentric
pattern with strong capital and
metropolitan regions in many parts of
Europe. London and its commuting zone
ranked top in 2016.
• Capital regions tend to be the most
competitive region in their Country, but
there are exceptions. In the
Netherlands, the capital region is
ranked second, while in Italy,
Lombardia, a historically highly
productive region, continues to be the
best. Many other German regions
outperform Berlin, which may be due to
its relatively short history as the capital
of a reunited Germany.
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
Other Region (min)Other Region (max)Capital Region
EU Region ranking based on RCI 2016 score (EU28=0)UK
Sweden
Portu
gal
Polan
d
Nethe
rland
s
Italy
Fran
ce
Finlan
d
Spain
Denmar
k
Ger
many
Czech
Rep
ublic
Belgium
Austr
ia
*Equal same rank is assigned to two regions if their score difference (on a 0-100 scale)
is not above 0.1
Source: Duff & Phelps REAG R&D on EU Regional Competitiveness Index 2016
Rank* Country Region name Rank* Country Region name
1 United KingdomLondon and regions covered by its commuting zone
254 Romania Sud-Muntenia
2 United KingdomBerkshire, Buckinghamshire and Oxfordshire
255 Romania Sud-Vest Oltenia
3 Netherlands Utrecht 256 Greece Ionia Nisia
4 Sweden Stockholm 257 Greece Dytiki Ellada
5 United KingdomSurrey, East and West Sussex
258 Greece Peloponnisos
6 Denmark Hovedstaden 258 Bulgaria Severozapaden
7 Luxembourg Luxembourg 258 Greece Sterea Ellada
8 France Île de France 261 GreeceAnatoliki Makedonia, Thraki
9 Germany Oberbayern 262 Romania Sud-Est
10 United KingdomHampshire and Isle of Wight
262 France Guyane
Top 10 and Bottom 10 EU regions
Source: Duff & Phelps REAG R&D on EU Regional Competitiveness Index 2016
European Real Estate Market - April 2018
4Duff & Phelps Real Estate Advisory Group
The European Union
D I G I TA L E C O N O M Y A N D S O C I E T Y
E-shopping• In the EU 66% of all age groups internet
users ordered good or services online
• In 2016, clothes & sports goods are the
most popular online purchases,
followed by travel/holiday
accommodation, household goods and
tickets for events. Less common were
online purchases of food or groceries
and medicine.
• Looking at e-shopping data using
age-users criteria, it comes to light that
clothes & sports are mainly ordered by
“millennials”(aged 16 to 34 years).
Booking travel and holiday
accommodation online are purchased
by shoppers aged 45 to 64 year (57%).
Finally, the age group of 35 to 44 year
old had the highest share of e-shoppers
who bought household goods online
(52%).
E-sales• According to Eurostat, in 2016, ‘20% of
EU businesses reported that they
conducted e-commerce sales (e-sales)
to consumers, other businesses and/or
public authorities; this is a moderate
increase compared with 15 % in 2010’.
The turnover derived by e-sales
amounted to 16% of the total (11% of
EDI-type sales and 5% of web sales).
• In the EU, in 2016, web sales to other
business (B2B) were 12% and to
consumers (B2C) were 13%. Of the 5
% of total turnover generated by web
sales, 2 % came from B2C sales and 3
% from B2B sales.
0%
5%
10%
15%
20%
25%
30%
35%
40%
Nor
way
Uni
ted
Kin
gdom
Sw
eden
Finl
and
Slo
vaki
aS
love
nia
Rom
ania
Por
tuga
lP
olan
dA
ustri
aN
ethe
rland
sM
alta
Hun
gary
Lith
uani
aLa
tvia
Cyp
rus
Italy
Cro
atia
Fran
ceS
pain
Gre
ece
Irela
ndEs
toni
aG
erm
any
Den
mar
kC
zech
Rep
ublic
Bul
garia
Bel
gium
Enterprises’ total turnoverfrom e-commerce
Enterprises having received ordersvia computer mediated networks
Percentage of Enterprises having received orders via computer mediated networks and related % of turnover from e-commerce (2016)
Average percentage Var % yoy (2017/2016)
0%
10%
20%
30%
40%
50%
60%
Nor
way
Uni
ted
Kin
gdom
Sw
eden
Finl
and
Slo
vaki
aS
love
nia
Rom
ania
Pol
and
Aus
tria
Net
herla
nds
Mal
taH
unga
ryLu
xem
bour
gLi
thua
nia
Latv
iaC
ypru
s
Cro
atia
Italy
Fran
ceS
pain
Gre
ece
Irela
ndE
ston
iaG
erm
any
Den
mar
kC
zech
Rep
ublic
Bul
garia
Bel
gium
-35%-30%-25%-20%-15%-10%-5%0%5%10%15%20%
Average percentage of individuals who ordered goods or services,over the internet, for private use in 2017 and var % yoy
6%
-3%1%
11%
5%4%
8%
16%
2%7%
3%
-28%
-4%-2%
3%1%
6%
15%
7%
1%5%
-4% -2%3% 2%
7%2%
7%
Average %of individuals
var % yoy (2017/2016)
Source: Duff & Phelps REAG R&D on Eurostat
Source: Duff & Phelps REAG R&D on Eurostat
European Real Estate Market - April 2018
5Duff & Phelps Real Estate Advisory Group
European Office Market
I N V E S T M E N T S VO L U M E• In 2017, the volume of investments in
the office sector increased by 5% on an
annual basis.
• Office still remains the most attractive
sector for investors, with the 43% of
total investments.
• Strong investments were registered in
Spain, Netherland, Italy and Ireland, but
Germany remains the most attractive
country with several deals greater than
10,000 m2.
K E Y D R I V E R S• Management of innovative office space
(smart-working)
• Technology will increase the demand in
the main tech district
• Lack of supply core asset
• Shorter leases
• Efficiency, quality and flexibility
VAC A N CY • On half-yearly basis, vacancy rates
remained stable at 7.7%, compared to
2016 which decreased by 0.7% across
European markets.
• The greatest compressions were
registered in Prague (-3.7%) and
Barcelona (-3%).
Office Total
Investments (€ billion)
0
50
100
150
200
250
300
€ Billion
2013 2014 2015 2016 2017
Source: Duff & Phelps REAG R&D on various sources
0%
14%
12%
10%
8%
6%
4%
2%
-400
-200
-300
0
-100
100
200
Am
ster
dam
Bar
celo
naB
erlin
Birm
ingh
amB
russ
els
Cop
enha
gen
Dub
linD
usse
ldor
fFr
ankf
urt
Ham
burg
Hel
sink
i (C
BD
)Li
sbon
Lond
onLu
xem
bour
gM
adrid
Mila
nM
osco
wM
unic
hO
slo
Par
isP
ragu
eR
ome
St.
Pet
ersb
ourg
Sto
ckho
lmV
ienn
aW
arsa
wZ
uric
h
Vacancy rate (%) YOY var. (bps)
bps
-60
-300
10
-320
-200
-40 -2
0
-110
-230
-20
-20
-150
50
-90
-190
70
-210
100
40
-50
-370
-120
-110
0
-30
-250
-10
Source: Duff & Phelps REAG R&D on various sources
European Real Estate Market - April 2018
6Duff & Phelps Real Estate Advisory Group
European Office Market
P R I M E R E N T S A N D Y I E L D S• In 2017, average prime rents slightly
increased (+3%) and average prime
yields are under compression, reaching
4.2% on annual basis.
• For 2018, this trend of rental growth
and yields compression is expected to
continue.
M A R K E T H I G H L I G H T S :• London: ‘The Brexit effect’ represents a
potential risk for investments, in
particular for those related to relocation.
• Milan: Remained the most dynamic
Italian location. In particular CDB and
Centre sub-markets registered an
important take up increase.
• Barcelona: In line with the Spanish
economic recovery, the take up of the
CBD increased due to national and
international investments.
• Paris: Take up in 2017 increased by 2%
and vacancy rate remained stable. On
the other hand, investments saw an
important decrease compared to the
previous year, mainly due to a lack of
mega-transaction.
• Rents in prime cities in Germany rose
again and are expected to grow in 2018
due to the operator in co-working
spaces
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%European average prime office rents and yields
2013 2014 2015 20172016300320340360380400420440460480
Net prime yields (%) Prime rents (€/sqm/year)
€/sqm/year
Source: Duff & Phelps REAG R&D on various sources
0
100
200
300
400
500
600
700
800
900
1,000
0%
2%
4%
6%
8%
10%
12%
Office market
Prime rent 2016 (€/sqm/year)
Prime rent 2017 (€/sqm/year)
Net prime yield (%)
Vien
naW
arsa
w
Sto
ckho
lmR
ome
Pra
gue
Par
isO
slo
Mun
ich
Mos
cow
Mila
nM
anch
este
rM
adrid
Luxe
mbo
urg
Lond
onLi
sbon
Hel
sink
iH
ambu
rgG
lasg
owFr
ankf
urt
Edin
burg
hD
usse
ldor
fD
ublin
Cop
enha
gen
Bru
ssel
les
Birm
ingh
amB
erlin
Bar
celo
naA
mst
erda
m
€/sqm/year
Source: Duff & Phelps REAG R&D on various sources
European Real Estate Market - April 2018
7Duff & Phelps Real Estate Advisory Group
European Office Market
© d
-map
s.co
m500 km
300 mi
Moscow622
10.3%
Stockholm645
3.5%
Oslo451
3.7%Edinburgh
4195.4%
Manchester440
4.9%
London852
4.1%
Birmingham426
4.9%
Glasgow382
5.4%
Dublin683
4.1%
Lisbon238
4.6%
Madrid385
3.5%
Barcelona252
3.6%
Paris768
3.2%
Brussels286
4.4%
Amsterdam400
3.8%Dusseldorf
3733.5%
Frankfurt400
3.1%
Munich416
3.5%
Wien410
3.8%
Zurich675
2.7%Milan520
3.6%
Rome403
4.1%
Berlin331
3.4%Prague
2524.7%
Warsaw272
5.3%
Hamburg368
3.1%
Copenhagen304
3.8%
Helsinki336
3.5%
Luxembourg586
4.3%
Legend:Prime rents (€/sqm/year)Prime yields (%)
Source: Duff & Phelps REAG R&D on various data
European Retail Market
European Real Estate Market Study - April 2018
8Duff & Phelps Real Estate Advisory Group
I N V E S T M E N T S VO L U M E• In 2017, the volume of investments in
the retail sector increased by 3% over
the prior year.
• Retail investment represents 22% of the
European ones.
• Investor demand is expected to
experience a strong recovery in 2018.
• Investors are looking for core properties
in the emerging markets.
• In 2018, private consumption will
increase thanks to the higher consumer
confidence and the tourism growth.
K E Y D R I V E R S • Growth of tourism in prime locations
• Population growth
• Digital economy
• Lack of supply in prime location
VAC A N CY • The strong demand in the main Europe-
an markets led to a compression in
vacancy rates that in 2017 reached
4.7%.
Investments (€ billion)
Retail Total
€ Billion
0
50
100
150
200
250
300
20172016201520142013
Source: Duff & Phelps REAG R&D on various sources
High Street yieldsHigh Street rents
Shopping centre yieldsShopping centre rents
European Average prime retail rents and yieldsyields
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%rents
0
50
100
150
200
250
201720162015201420132012
Source: Duff & Phelps REAG R&D on various sources
European Retail Market
European Real Estate Market Study - April 2018
9Duff & Phelps Real Estate Advisory Group
P R I M E R E N T S A N D Y I E L D S• In 2017, average prime rents registered
an increase of 1.2% for High Streets
and 1.6% for shopping centers,
respectively.
• Average net prime yields slightly
decreased, reaching 4,1% for the High
Street market and 4.9% for shopping
centers
• Further yields compression in the main
European markets is expected in 2018.
M A R K E T H I G H L I G H T S• UK: Investments are dominated by the
political uncertainties caused by Brexit.
Nonetheless, London remains one of
the most expensive cities.
• Italy: prime rents in the main cities are
growing sustained by tourism. Market is
still dominated by international player.
• Germany: Secondary locations are
taking advantage of the lack of supply in
prime areas. Rents remained stable
compared to 2016.
• France: Demand in Paris remained
resilient thanks to the attractive
environment and the impact of tourists.
On the contrary, demand for secondary
locations is weakening.
• Spain: Growth of tourism and economic
improvements helped to maintain stable
rents and yields for the High street. An
increase in turnover is expected in
2018.
Yield shopping centre
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
Rus
sia
Gre
ece
Bul
garia
Rom
ania
Hun
gary
Slo
vaki
a
Irela
nd
Por
tuga
l
Pol
and
Finl
and
Italy
Uni
ted
Kin
gdom
Sw
eden
Spa
in
Cze
ch re
publ
ic
Bel
gium
Aus
tria
Ger
man
y
Nor
way
Fran
ce
Net prime Yield 2016 Net prime Yield 2017
Source: Duff & Phelps REAG R&D on various sources
0
5,000
10,000
15,000
20,000
25,000
Bra
tisla
vaB
ucha
rest
Lisb
onW
arsa
wB
irmin
gham
Man
ches
ter
Edim
burg
hS
tock
holm
Bru
ssel
sH
elsi
nki
Osl
oP
ragu
eG
lasg
owM
osco
wC
open
hage
nA
mst
erda
mM
adrid
Bar
celo
naH
ambu
rgB
erlin
Fran
kfur
tVi
enna
Mun
ich
Dub
linZu
rich
Rom
eM
ilan
Lond
onP
aris 0%
2%
4%
6%
8%
10%
12%
14%
Prime rent 2016 (€/sqm/year)
Prime rent 2017 (€/sqm/year)
Net prime yield (%)2017
€/smq/year High Street Retail market
Source: Duff & Phelps REAG R&D on various sources
© d
-map
s.co
m500 km
300 mi
Moscow4,01612.0%
RUS9.5%
Stockholm1,3393.9%
S4.5%
Oslo2,5623.9%
N4.1%
Edinburgh1,6244.4%
UK4.1%
Manchester2,5464.0%
London16,0002.5%
Birmingham1,2984.5%
Glasgow2,5834.0%
Dublin4,7353.5%
IRL4.9%
Lisbon1,4405.0%
P5.5%
Madrid3,1803.2%
E4.3%
IT4.9%
GR8.3%
BG7.4%
RO7.0%
Barcelona3,3403.4%
Paris19,9982.3%
F3.5%
Brussels1,9353.3%
B4.1%
Amsterdam3,0483.0%
Frankfurt3,6603.2%
D4.1%
Munich4,4402.9%
Vienna3,6602.9%A
4.5%
Zurich17,6043.2%
Milan13,0003.0%
Rome12,5002.9%
Berlin4,0653.3%
Prague2,5443.6%
CZ4.7%
Warsaw1,0686.5%
PL5.3%
Bratislava516
7.3%
H5.8%
SK6.0%
Hamburg3,5203.4%
Copenhagen2,8163.0%
Helsinki2,1304.2%
FIN4.4%
Bucharest564
7.5%
European Retail Market
European Real Estate Market Study - April 2018
10Duff & Phelps Real Estate Advisory Group
Source: Duff & Phelps REAG R&D on various sources
Legend:High Street prime rents (€/sqm/year)High Street Net prime yields (%)Shopping Centre net prime yield (%)
European Logistics Market
European Real Estate Market Study - April 2018
11Duff & Phelps Real Estate Advisory Group
I N V E S T M E N T S VO L U M E• In 2017, the volume of industrial
investments increased by 54% on an
annual basis.
• The Industrial sector was the most
attractive commercial real estate market
in terms of investments.
• Industrial investments absorbed 15% of
the total. Investments in this sector
doubled compared to 2016.
• UK registered the highest volume of
investment.
K E Y D R I V E R S• Warehouse spaces
• Drones
• High quality greenfield and brownfield
required
• Build-to-suit developments
• Well-connected assets
• Digital economy
VAC A N CY • Vacancy rates continued to decline in
most of the major markets, reaching the
lowest level in the past five years
Industrial and logistics Total
Investments (€ billion)
0
50
100
150
200
250
300
€ Billion
2013 2014 2015 2016 2017
Source: Duff & Phelps REAG R&D on various sources
Germany24%
France12%
Nordic countries12%
UK32%
Italy3%
Other countries3%
Netherlands8%
Poland3%
Spain3%
Investments by country
Source: Duff & Phelps REAG R&D on various sources
European Logistics Market
European Real Estate Market Study - April 2018
12Duff & Phelps Real Estate Advisory Group
P R I M E R E N T S A N D Y I E L D S• In 2017, rents remained stable in most
countries.
• Average net prime yields remained
stable at 6%.
• In 2018, yield compression and rental
growth is expected for the main markets
due to the lack of investment products.
M A R K E T H I G H L I G H T S• UK: Despite the low yields, e-commerce
and positive rental growth continue to
attract the investors.
• Italy: 2017 registered a record in terms
of annual volume. Demand is dominated
by built-to-suite projects.
• Germany: Strong demand for quality
space and the lack of land increased
the speculative construction
• France: Rents and yields are stabilizing.
Supply is increasing in secondary
regions.
• Spain: 2017 ended with a take up above
the average of last year, but it was not
recorded levels of 2016. Rents are
expected to grow, while yields will see a
slight compression.
• Netherlands: The positive economic
development impacted the
transportation sector, which saw a
sharp growth of new logistics buildings.
0
20
40
60
80
100
120
140
160
180
War
saw
Wie
nS
tock
holm
St.
Pet
erbo
urg
Rom
eP
ragu
eP
aris
Osl
oM
unic
hM
osco
wM
ilan
Man
ches
ter
Mad
ridLo
ndon
Lisb
onH
elsi
nki
Ham
burg
Gla
sgow
Fran
kfur
tEd
inbu
rgh
Dus
seld
orf
Dub
linC
open
hage
nB
russ
eles
Birm
ingh
amB
erlin
Bar
celo
naA
mst
erda
m
0%
2%
4%
6%
8%
10%
12%
14%
Logistics market
Prime rent 2016 (€/sqm/year)
Prime rent 2017 (€/sqm/year)
Net prime yield (%)
€/sqm/year %
Source: Duff & Phelps REAG R&D on various sources
0.0%
2.0%
1.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
European average prime logistics rents and yields
2013 2014 2015 20172016
Net prime yields (%) Prime rents (€/sqm/year)
€/sqm/year
0102030405060708090
Source: Duff & Phelps REAG R&D on various sources
© d
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s.co
m500 km
300 mi
Moscow58
12.1%
Stockholm96
5.4%
Oslo123
5.0%Edinburgh
856.0%
Manchester78
5.0%
London167
4.3%
Birmingham80
4.9%
Glasgow87
6.3%
Dublin88
5.4%
Lisbon45
7.1%
Madrid65
5.9%
Barcelona76
5.9%
Paris57
5.0%
Brussels56
6.0%
Amsterdam65
5.5%Dusseldorf
664.6%
Frankfurt74
4.6%Munich
814.6%
Vienna64
5.9%Milan
536.0%
Rome54
6.3%
Berlin60
4.6%Prague
516.0%
Warsaw57
6.3%
Hamburg68
4.6%
Copenhagen75
6.2%
Helsinki116
6.0%St. Petersburg
5612.8%
European Logistics Market
European Real Estate Market Study - April 2018
13Duff & Phelps Real Estate Advisory Group
Legend:Prime rents (€/sqm/year)Net prime yields (%)
Source: Duff & Phelps REAG R&D on various sources
Duff & Phelps Real Estate Advisory Group
R&D Dept. Italy
+39 039 6423876
www.duffandphelps.it
www.duffandphelps.com
C O N TAC T
The information presented in this report has been obtained with the greatest of care from sources believed to be reliable, but is not guaranteed to be complete, accurate or timely. Duff & Phelps, LLC expressly disclaims any liability, of any type, including direct, indirect, incidental, special or consequential damages, arising from or relating to the use of this material or any errors or omissions that may be contained herein.
About Duff & Phelps
Duff & Phelps is the global advisor that protects, restores and maximizes value
for clients in the areas of valuation, corporate finance, disputes and investigations,
compliance and regulatory matters, and other governance-related issues.
Our clients include publicly traded and privately held companies, law firms,
government entities and investment organizations such as private equity firms
and hedge funds. We also advise the world’s leading standard-setting bodies on
valuation and governance best practices. The firm’s nearly 2,500 professionals
are located in over 70 offices in 20 countries around the world.
For more information, visit www.duffandphelps.com
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M&A advisory, capital raising and secondary market advisory services in the
United States are provided by Duff & Phelps Securities, LLC. Member FINRA/
SIPC. Pagemill Partners is a Division of Duff & Phelps Securities, LLC. M&A
advisory, capital raising and secondary market advisory services in the United
Kingdom are provided by Duff & Phelps Securities Ltd. (DPSL), which is authorized
and regulated by the Financial Conduct Authority. M&A advisory and capital raising
services in Germany are provided by Duff & Phelps GmbH, which is a Tied Agent of
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Private Limited under a category 1 merchant banker license issued by the Securities
and Exchange Board of India.