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Recovery Summit

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14th October 2010BNP Paribas Real Estate Offices

London

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WHAT LIES AHEAD FOR THE ECONOMY &

PROPERTY MARKETS?

Lucy O’Carroll

Senior Economist

Lloyds Banking Group

3

Where are we today?

What does the future hold?

What are the key risks to the outlook?

Three questions

4

UK Economy: Activity in 2010 H2 is likely to disappointThe strong first half of 2010 was largely due to restocking and volatile consumer and investment spending. Latest surveys of confidence and activity point to a slower outlook

PMI surveys and consumer confidence

30

38

46

54

62

Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10

-40

-30

-20

-10

0PMI Manufacturing

PMI Services

Consumer Confidence

PMI survey Index

GFK Consumer Confidence

5

Fragile recovery in the labour market Part-time employment has been underpinning the labour market. The proportion of individuals remaining jobless for more than 12 months is still rising, albeit at slower rate

Employment by type

in %q/q change;

in 000s

-400

-300

-200

-100

0

100

200

300

2007 2008 2009 2010

-3

-2

-1

0

1

2

Self-employed

Part-time

Full time

Total employment annual growth (rhs)

Unemployment by duration

in %q/q change;

in 000s

-150

-100

-50

0

50

100

150

200

250

300

2007 2008 2009 2010

5

5.5

6

6.5

7

7.5

8

8.5More than 12 monthsBetween 6 and 12 months

Up to 6 months

ILO unempl.rate (rhs)

6

Credit conditions remain weakCorporate lending shrank further during the summer, as demand appears to be growing at a slower pace than availability

0

20

40

60

80

100

120

2007 2008 2009 2010

Excess supply

Excess demand

BoE Survey on credit availability and demand

* Cumulative level of respondents reporting a rise as % of those reporting a decline; reporting on activity in previous 3 months.

Q1 2007 = 100

Creditavailability

Creditdemand

Corporate lending*(medium-sized companies)

-20

-10

0

10

20

30

40

50

2008 2009 2010

Non-financial private corporations

Unsecured consumer credit

Mortgages

Quarterly net lending flows(in £bn)

Net lending by sector

7

Strong recovery in commercial property prices has now stalledConsensus forecasts for 2010 and 2011 capital value growth have declined over the past few months

Commercial property prices and consensus forecasts*

120

126

132

138

144

150

Dec 08 Dec 09 Dec 10 Dec 11 Dec 12

Capital values, index

IPF Forecasts May. '10

IPF Forecasts Aug. '10

IPD Commercial propertycapital values index

*Year-end IPF Consensus forecasts; linear interpolation for in-between months.

8

Residential property price inflation close to flat Mortgage approvals at historic lows, declining down-payments, modest employment growth and uncertainty around price expectations explain subdued growth

House prices against household income

-3

-2

-1

0

1

2

3

4

1985 1990 1995 2000 2005 2010

2.5

3

3.5

4

4.5

5

5.5

6House price to average income ratio

m/m % chg (3-month average)

Monthly % change(3-month moving average)

House price* as multiples of average earnings

*Based on all-houses and all-buyers data.

9

Markets have shifted rate rise expectations further into the futureGiven contained inflation risks, uncertainty around spare capacity and weak credit

growth, the yield curve has flattened further in recent months.

Changes in the yield curve over the past 6 months

0.0

1.0

2.0

3.0

4.0

5.0

0 5 10 15 20

0

1

2

3

4

5

Feb '10

Apr '10

Jun '10

Aug '10

UK Treasury Strip (yield to maturity; in %)

Time to maturity

~11

0 b

ps

10

Where are we today?


What are the key risks to the outlook?

Three questions

11

Global and UK monetary policy slightly more accommodative than expected.

Bank and consumer deleveraging slightly faster than anticipated.

Domestic demand marginally stronger than expected (so far).

Net trade weaker than expected.

Level of confidence broadly in line with expectations.

Policy rate rises likely to come later.

Outlook for property markets has weakened.

Real GDP growthOur ‘central’ scenario reviewed

Our base case scenario Given the way the recovery has shaped up so far, we remain of the view that it will be subdued by historic standards. However, we do not believe a ‘double dip’ is the most likely outcome for the UK economy

1

1.5

2

2.5

3

'10 '11 '12 '13 '14

Consensus Forecasts (as of Aug. 2010 )

LBG early-2010 forecast

LBG mid-2010 forecast

12

Our base case for property marketsRecovery in both housing and commercial property expected to be subdued by credit constraints and fairly anaemic bounce back in wider economy

Commercial property price forecasts

Source: Halifax house price index, IPD commercial property price index, LBG forecasts

% change on a year earlier (December) % change on a year earlier (December)

House price forecasts

03

8

2 103 4

2 1 25

-18

6

'07 '08 '09 '10 '11 '12 '13 '14 '15

6

25 5 56

25 5 5 4

-6

-26

-5

'07 '08 '09 '10 '11 '12 '13 '14 '15

13

Where are we today?


What are the key risks?

Three questions

14

Just how uncertain is the outlook?The Bank of England’s ‘fan chart’ forecast for GDP growth is effectively anadmission that economists are not very good at predicting the future…

The fan chart depicts the probability of various outcomes for GDP growth. It has been conditioned on the assumption that the stock of purchased assets financed by the issuance of central bank reserves remains at £200 billion throughout the forecast period. To the left of the first vertical dashed line, the distribution reflects the likelihood of revisions to the data over the past; to the right, it reflects uncertainty over the evolution of GDP growth in the future. If economic circumstances identical to today’s were to prevail on 100 occasions, the MPC’s best collective judgement is that the mature estimate of GDP growth would lie within the darkest central band on only 10 of those occasions. The fan chart is constructed so that outturns are also expected to lie within each pair of the lighter green areas on 10 occasions. In any particular quarter of the forecast period, GDP is therefore expected to lie somewhere within the fan on 90 out of 100 occasions. And on the remaining 10 out of 100 occasions GDP growth can fall anywhere outside the green area of the fan chart. Over the forecast period, this has been depicted by the light grey background. In any quarter of the forecast period, the probability mass in each pair of the identically coloured bands sums to 10%. The distribution of that 10% between the bands above and below the central projection varies according to the skew at each quarter, with the distribution given by the ratio of the width of the bands below the central projection to the bands above it. In Chart 1, the ratios of the probabilities in the lower bands to those in the upper bands are approximately 6:4 at Years 1, 2 and 3. See the box on page 39 of the November 2007 Inflation Report for a fuller description of the fan chart and what it represents. The second dashed line is drawn at the two-year point of the projection.

15

What are the uncertainties around the economic outlook? The UK economy could move into a recessionary territory – if pushed there by austerity measures, sovereign defaults, ill-timed policies, a wholesale funding market crisis or a sudden unwinding of global imbalances

12%

25%

40%

15%

Otheradverse

scenarios

Doubledip

Base case

Upside

Key risks

Fiscal policy configuration and impact

Consumers’ propensity to save

Banks’ rate of deleveraging

Monetary policy exit

Global imbalances unwinding

(or lower)

Risks are skewed to the downside…

Probability

16

Some final thoughtsResults from the latest LTSB Commercial Property Confidence Monitor …tend to chime with forecast of continued, fairly subdued recovery

August 2010 Monitor shows large proportion of businesses expect a static picture in the next 3-6 months– With Fund Managers most likely to expect a fall in property values, and Major

Businesses most resilient & optimistic

A small majority of Medium-Large businesses expect prices to fall, but the anticipated magnitude of decline is smaller than a year ago (1-5% fall)

Investment is most likely at top of the market (Major Businesses & Fund Managers)

Generally speaking, no strong regional differences – in contrast to past results

Outlook for House Building seen as strongest amongst Small & Medium firms– Whereas Fund Managers & Major Businesses favour Offices– Though a large proportion (38%) of respondents in London were not sure what the

best-performing sector would be in the next 3-6 months

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How can banks make the recovery sustainable?

Nick Robinson

Consultant

Blackstone Group

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How can banks make the recovery sustainable? What is the outlook for the property sector in the coming months ?

Nick Robinson

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Key questions

How important is this question?

How is this playing out?

What are the implications?

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~£160b ‘problem CRE loans’ in UK

Profile:Secondary/tertiary

and/or complex trading assets

UnderinvestedComplex to valueTraditional buyers

in short supplyProbably ~£120b

net (needing about £40b of equity)

UK CRE Lending Market(£b) , 2010

Total lending ~£300b

CMBS

Bank loans

Performing

‘Terminally over-leveraged’

Distressed

140

80

80

250

50

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~€110b of CRE disposal commitments

4025

17

8

45

Non-core disposal CRE portfolios - Global€b, H1 2010 (net of impairment)

• Target date: 2014• Target size: £10-20b

• Target date: 2013• Target size: ~£5b

• Target date: 2017-20• Target size: ~€0b

Source: Interim results statements, and NAMA strategy document

Disposal target

Residual

Residual

Disposal target

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Unsustainable bank debt

Less than 10% of total debt

Hard to see new bank capacity coming into the market

Limited CMBS activity and outlook uncertain

Easy to see capacity slipping away further

New sources of debt likely to emerge, but unlikely to be material enough to bridge the gap

Annual CRE Loan Origination(£ in billions)

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-75%

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75%

100%

125%

CRE Loan Originations Y-o-Y Growth Rate________________________________________________

Source: “The UK Commercial Property Lending Market”, De Monfort University.

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What this all means…

~£120b (net) of ‘bank controlled’ assets need significant new equity in the next ~3-6 years – a lot!

Many of these assets are tough and ‘not for the faint hearted’

Even if banks wanted to support all these businesses, balance sheet reduction targets will force disposals

There will be very limited new debt through conventional bank channels

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Key questions

How will bank actions influence the real estate market and how material could these actions be?

How is this playing out?


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Third party pressures growing

Central bank funding being withdrawn

Replacement funding (CMBS, deposits) tough

Balance sheet reduction commitments (EU State Aid remedies) stretching

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So far very little has happened

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The reasons for this are relatively clear

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Key questions

How will bank actions influence the real estate market and how material could these actions be?

How might this all play out?


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This will happen in slow motion

Catalysts Financial incentives in

the right direction Loss Provisions Swap provision Capital release

Pressure on banks Analysts/regulators Central banks Peers

Likely to build steadily (no dam busting

event foreseen)

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Lessons from recent disposals

Assets - a disproportionate prime (or good secondary)

Buyer – property companies

Valuations –sold at or above the valuation

Process - administrator/ receiver led auction-type processes

Stapled debt – virtually none

Next 3 years.. Assets – often secondary

or tertiary Buyers – often opportunity

funds Valuations – often too high Process - more complex

(often consensually) Stapled debt – many will

require stapled debt

And, it will be different from last 12 months

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And debt will be tough to come by…

For restructures, debt will often have to be left behind in order to ensure returns to buyers

For ‘new deals’ different sources of debt will need to be found (e.g., life and pension funds, leveraged finance markets, public markets)

‘…the supply of bank lending to businesses during the recovery is likely to be more expensive than it was pre-crisis and possibly constrained in quantity…’ (Paul Fisher - BoE Director of Markets, 30/9/2010)

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Implications…

There is unlikely to be a flood of distressed assets onto the market, but there will be a steadily increasing volume (and may be the majority of transactions in 12-24 months time)

The mechanisms through which these assets get recapitalised will be varied and often quite different from models of the past

Access to debt will be critical for those who depend upon it for their returns – there simply won’t be enough

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Banks: Where next?

Chair: Mike Phillips, Property Week

Stephen Eighteen, Royal Bank of Scotland

Scott Stuart, Santander Corporate Banking

Peter Denton, West lmmo

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Market analysis by sector

Malcolm Frodsham

Research Director

Investment Property Databank

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Market Analysis

How has the property market been impacted by the recession?

How has each sector been impacted by the recession?

Opportunities & risks for each sector

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Market Analysis


Are rents & yields heading for the doldrums? Rally in pricing running out of steam? Fit-full progress in rental trends Domestic net investment holding steady Fair value reached?

How has each sector been impacted by the recession? Opportunities & risks for each sector

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Are Yields & Rents Heading For The Doldrums?

Yields have fallen 69bps in the 1st half of 2010 following falls of 106 bps in the second half of 2009.

Twelve month total returns to Q2 2010 up to +25%. (+24% to August)

The 9th quarter of falling rental values pulling values down -10% overall.

-15

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-5

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Quarterly performance, % per quarter:

Total Return Rental Value Growth Yield Impact

Source: IPD UK Quarterly Index (Sep-10 = last 3 months from IPD Monthly Index to August

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Rally In Pricing Running Out Of Steam?

Inward yield movement strongest on shopping centres in the 2nd quarter, over-taking the moderating rate of fall on central London offices.

Yield falls also greater on the other retail formats than office assets outside of central London and industrials.

-20-15-10

-505

101520

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Quarterly yield impact on capital values, quarterly rate, %:

Standard Shops Shopping Centres

Retail Warehouses Rest of UK Std OfficesCentral London Offices Industrial


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Fit-Full Progress In Rental Trends

Further increases in office rental values – but growth focussed on London.

Further rental falls in all retail and industrial formats but progress stuttering.

Small rises registered over the quarter from both London shops & industrials.

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Quarterly rental value growth, quarterly rate, %:

Standard Shops Shopping Centres

Retail Warehouses Rest of UK OfficesCentral London Offices Industrial


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-6

-4

-2

0

2

4

6

8

Jun

-01

Jun

-02

Jun

-03

Jun

-04

Jun

-05

Jun

-06

Jun

-07

Jun

-08

Jun

-09

Jun

-10

Quarterly flows as % of capital value:

Net Investment Spending Receipts

Net Investment Holding Steady

Q1 & Q2 carbon copies: net investment at 1.5%, expenditure 3.3% & receipts 1.8% (all expressed as a percentage of capital value).

Source: IPD UK Quarterly Index

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Fair Value ‘Equator’ Crossed

Equivalent yield down over the quarter from 7.5% to 7.3%

Gilt yields edge up from 3.8% to 3.9%

Yield gap falls to 341 bps

Property equivalent yield & yield gap vs gilts

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Equivalent - Gilts Equivalent Yield Gilt Yield


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Market Analysis


How has each sector been impacted by the recession? Total Returns By Segment Drivers of Capital Growth The 1990s & 2000s rental cycles compared

City Office Unit Shops Industrials

Domestic Investment Opportunities & risks for each sector

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4.2

2.7

3.7

3.2

5.1

4.7

2.2

2.1

2.7

2.7

4.2

0 2 4 6

Std Retail - Sth East

Std Retail - Rest UK

Shopping Centres

Retail Warehouses

Offices - City

Offices - West End

Offices - Rest Sth East

Offices - Rest UK

Industrials - Sth East

Industrials - Rest UK

Other

Total Returns By Segment Q2 2010 %

A ‘bunching up’ across the segments - only a 3pp spread from worst to best market, below the long run average of 4pp.

City offices lead the way for the second quarter running whilst rest of south east offices limp past regional offices to move off the bottom of the rankings.

Total returns for Q2 2010


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-2 0 2 4 6

Std Retail Sth East

Std Retail Rest UK

Shopping Centres

Retail Warehouses

Offices City

Offices West End

Offices Rest Sth East

Offices Rest UK

Industrials Sth East

Industrials Rest UK

Other

Rental Value Growth Yield Impact

Drivers of Capital Growth Q2 2010 %

Yield falls most focussed on central London offices where rental value growth is also contributing to positive capital growth

Further yield falls elsewhere responsible for positive capital growth rather than rising rents


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-2 -1 0 1 2

Std Retail Sth East

Std Retail Rest UK

Shopping Centres

Retail Warehouses

Offices City

Offices West End

Offices Rest Sth East

Offices Rest UK

Industrials Sth East

Industrials Rest UK

Q1 2010 Q2 2010 Q3 2011*

Rental Value Change, %

Rental trends improved in the 2nd quarter particularly on unit shops, offices and industrials in the south east

City office rental values grew less quickly than in the 1st quarter


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City Offices - The 1990s & the 2000s – Rental Cycles

Rental value in City offices broke into positive territory after only 7 quarters of falls…

…but from May to July 1994 and from February to August 1996 rents on City offices also rose, only to fall back.

Years from return peak

-50-40-30-20-10

0102030

0 1 2 3 4 5 6 7 8

Quarterly rental value change at an annual rate:

1990s Rental Values 2000s Rental Values

Source: IPD UK Monthly Index

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Standard retail - The 1990s & the 2000s – Rental Cycles

Standard retail trend bottomed out at a more significant -9% pa.

Trajectory the same as the 1990s – if so should we pencil in further small falls in rents until May 2011?

Years from return peak

-15

-10

-5

0

5

10

15

20

25

0 1 2 3 4 5 6 7

Quarterly rental value change at an annual rate:

1990s Rental Values 2000s Rental Values

Source: IPD UK Monthly Index

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Segment and net investment % of capital value, Q2 2010

-5 0 5 10

Shopping Centres

Offices - Rest of South East

Retail Warehouses

Offices - Rest of UK

Other Property

Offices - City

Standard Retail - Rest of UK

Offices - West End

Standard Retail - South East

Industrials - Rest of UK

Industrials - South East

Capital Spending Capital Receipts

Money: Investors Seek Industrial Yield

The 3 sectors accounted for an equal share of net investment.

Industrial net investment as a percentage of capital value therefore highest as this is the smallest sector.

Turnover highest on south east offices – out with the old & in with the new?


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Industrial Rental Trends

The driver of returns in industrials has been income driven by consistent sub inflation rates of rental value change

-14-12-10

-8-6-4-202468

De

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De

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De

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8Quarterly rental value growth, annual rate, %:

Source: IPD Monthly Index

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Market Analysis


How has each sector been impacted by the recession?

Opportunities & risks for each sector

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Std Retail Low

Std Retail High

Shopping Centres Low

Shopping Centres High

Retail Warehouses Low

Retail Warehouses High

Central London Offices Low

Central London Offices High

Rest S Eastern Offices Low

Rest S Eastern Offices High

Rest UK Offices Low

Rest UK Offices High

Industrials Low

Industrials High

Opportunity or Risk?

With scant rental growth on offer investors are balancing higher yields against income security.

In Q2 the capital boost from more favourable inward yield movements on higher yielding assets plus a higher income return began to more than compensate for their negative income growth.

Q2 total return for top & bottom yield quartiles %


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Opportunity or Risk? Shortening Lease Lengths

The falls in lease lengths is creating opportunities & risks in all sectors

Seek new sectors like supermarkets, student housing or healthcare where lease lengths remain long?

Change to RPI leases with annual uplifts?


0

2

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6

8

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12

14

16

18

20

Retail Office Industrial All Property

nu

mb

er

of

ye

ars

1999 2000 2001 20022003 2004 2005 20062007 2008 2009

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All developments - completion year & duration

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%1

98

9

19

90

19

91

19

92

19

93

19

94

19

95

Year of Completion

Me

dia

n IR

R %

0-12 months

13-24 months

25-36 months

37-48 months

49-60 months

61-72 months

73+ months

Length of Development Period:

Preliminary results – please treat as confidential

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Market Analysis

UK property market looks like it is heading for the doldrums

This does not rule out development Structural weakness in retail and cyclical

weakness in offices Once value has been destroyed growth can

continue from the lower base Embrace the new leasing environment or avoid?

RPI leases, annual uplifts?

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Market analysis by region

Richard Gwilliam

Deputy Head of Property Research

PRUPIM

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Market Analysis by Region

Richard Gwilliam

- Deputy Head of Property Research, PRUPIM

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UK vs Europe – GDP

UK GDP declined by more than 6% over the course of the recession, though Q2 of this year saw growth of 1.2%

Germany and Sweden fell by a similar amount (or even more), though saw an earlier and faster recovery

The PIIGS are struggling to recover. Ireland in particular saw a devastating decline

Source: OECD, PRUPIM

European GDP

84

86

88

90

92

94

96

98

100

102

2007

Q4

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

Re

al G

DP

(re

ba

se

d t

o 1

00

at

pe

ak

)

France Germany Sweden

Spain Italy Portugal

Ireland Greece UK

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UK vs Europe – Unemployment

While unemployment in the UK has increased significantly over the course of the recession, it has risen far less than many expected

UK unemployment currently lower than almost all Eurozone countries

The PIIGS (particularly Spain) have suffered from very weak labour markets

German employment has been relatively resilient

European Unemployment Rates

0

2

4

6

8

10

12

14

16

18

20

2007

Q3

2007

Q4

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

Un

em

plo

ym

en

t R

ate

(%

)

France Germany Sweden

Spain Italy Portugal

Ireland Greece UK

Source: Eurostat, PRUPIM

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UK vs Europe – Property Markets

The UK led almost all markets in the downturn, and recorded a total decline in values of around 44%

Most other European markets saw less of a decline – though began recovering a little later

Ireland’s property market has seen a spectacular slump

Source: IPD, PRUPIM

Capital Growth: European Property Markets

40

50

60

70

80

90

100

110

120

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

IPD

Ca

pit

al G

row

th In

de

x (

en

d 2

00

7 =

10

0)

France Germany Sweden Spain

Italy Portugal Ireland UK

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UK – London Drives Recovery

During the recession retail sales held up far better in London than in the rest of the country

London’s ability to attract tourists certainly drove a lot of the relative strength (helped by the weakness of sterling)

More generally London’s recovery from recession seems to have been more convincing than in other parts of the UK

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UK Regions – House Prices

House prices fell by more than 15% in almost all regions of the UK

Much stronger recoveries have been seen in the housing markets in London and the South

Northern Ireland stands out as having a particularly severe slump

Source: Nationwide, PRUPIM

House Price Growth

-40 -35 -30 -25 -20 -15 -10 -5 0 5 10 15 20

London

Inner SE

Outer SE

East Anglia

South West

Wales

East Midlands

West Midlands

Yorks/Humber

North West

Scotland

North

N Ireland

Nationwide House Price Cumulative Growth (%)

Q4 '07 to Q1 '09 Q1 '09 to Q3 '10

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UK Regions – Retail Rents

While average retail rents in London fell a fair amount, rents in most other parts of the country fell by more

London retail rents returned to growth by the end of last year

South East retail rents have also pretty much bottomed – after falling the least of all regions

The rest of the country is still seeing retail rents decline

Source: IPD, PRUPIM

Standard Retail Rents

-15 -10 -5 0 5

London - WE

South East

South West

Eastern

East Midlands

West Midlands

North West

Yorks & Humber

North East

Scotland

Wales

Standard Retail Cumulative Rental Growth (%)

Sep '08 to Dec '09 First half of 2010

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UK Regions – Office Rents

The volatile London office markets saw hefty rental declines during the downturn, but have shown growth since the end of last year

For the rest of the country, while rental decline was less severe, recovery is generally yet to be seen

Source: IPD, PRUPIM

Office Rents

-30 -25 -20 -15 -10 -5 0 5

City

Mid Tow n

West End

Inner London

Outer London

South East

South West

Eastern

East Midlands

West Midlands

North West

Yorks & Humber

North East

Scotland

Wales

Office Cumulative Rental Growth (%)

Mar '08 to Dec '09 First half of 2010

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UK Regions – Industrial Rents

With the exception of Scotland and the North East, industrial rents in the Northern parts of the UK fell by more than in the South

Average Scottish rents continued to grow during much of the recession, though have fallen so far this year

London industrial rents have bottomed and have started to show signs of improvement

Source: IPD, PRUPIM

Industrial Rents

-8 -6 -4 -2 0 2

London

South East

South West

Eastern

East Midlands

West Midlands

North West

Yorks & Humber

North East

Scotland

Wales

Industrial Cumulative Rental Growth (%)

Jun '08 to Dec '09 First half of 2010

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UK Regions – Investor Pricing

During the downturn, yield expansion was pretty indiscriminate, affecting all regions roughly equally

During the recovery, investors have been more discerning, showing more buying interest in the southern regions

London has outperformed over the last few years – investors have priced in superior fundamentals

Source: IPD, PRUPIM

3-Sector Average Yield Impact

-50 -40 -30 -20 -10 0 10 20 30

London

South East

South West

Eastern

East Midlands

West Midlands

North West

Yorks & Humber

North East

Scotland

Wales

Cumulative Yield Impact (%)

Downturn (2 yrs) Recovery (1 yr)

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Regional Resilience Going Forward

Analysis carried out by Experian for the BBC identifies the areas of England most vulnerable to the upcoming public spending cuts

While there is a lot of variation across the country, it is clear that the North is less resilient than the SouthSource: Experian/BBC

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Regional Resilience Rankings

The analysis ranked 324 local authority districts in England by their ability to withstand sudden changes in the economy (such as spending cuts)

Towns in the North generally have poorer resilience rankings – particularly in the North East (not a single district in the top 200)

The South East generally has the most resilient districts

Source: Experian, BBC, PRUPIM

England: Resilience Rankings

0

50

100

150

200

250

300

350

South

Eas

t

Easte

rn

Greate

r Lon

don

South

Wes

t

East M

idlan

ds

Yorks

/Hum

ber

Wes

t Midl

ands

North

Wes

t

North

EastE

xp

eri

an

Lo

ca

l Au

tho

rity

Dis

tric

t R

es

ilie

nc

e R

an

kin

g

0

50

100

150

200

250

300

350

Rankings: Median, interquartile range, and full range shown

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Public Sector Employment Prevalence

England has a fifth of its employees working in the public sector

This compares to more than a quarter for Scotland and Wales, and approaching a third for Northern Ireland

Large variation within England…

SE = 18%NE = 26%

Clear North/South divide

Regional Dependence on Public Sector Employment

0

5

10

15

20

25

30

35

South

Eas

t

East o

f Eng

land

Lond

on

East M

idla

nds

Engla

nd

Wes

t Mid

land

s

South

Wes

t

Unite

d Kin

gdom

North

Wes

t

Yorks

/Hum

ber

Scotla

nd

North

Eas

t

Wal

es

North

ern

Irela

nd

% P

ub

lic S

ec

tor

Em

plo

ye

es

, Q1

20

10

Source: ONS, PRUPIM

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UK Political Landscape

The government may be less worried (relatively) about cutting spending a lot in Scotland, Northern Ireland and Wales where Tory support is lowest

Comprehensive Spending Review due on 20th October

Source: BBC

2010 Election Results

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UK vs Europe Debt – Bond Spreads

The UK government needs to make dramatic reductions in government spending, to prevent the national debt burden becoming too great

UK government bond yields have remained low, while the PIIGS have seen their cost of borrowing increase as investors have priced in a higher risk of sovereign default

Reducing public sector dependence will also likely increase economic efficiency and improve productivity

Govt bond yield spreads (over bunds)Govt bond yield spreads (over bunds)

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Summary

The UK economy has been recovering from recession for a year now, and seems in better shape than parts of Europe

Necessary austerity measures mean that the parts of the UK that are most vulnerable to economic change, and most dependent on the public sector, are likely to struggle more in recovery

Areas to be most affected are Northern Ireland, Scotland, Wales, and the North of England

Property rental markets within London and the South East are already seeing improvement, while the rest of the UK is still generally suffering

Property investors have already priced in superior fundamentals for assets in prime southern markets. Opportunity for those willing to take the risk on more secondary markets?

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Occupier and tenant relationships

Howard Morgan, Real Service

Justin Snoxall, British Land

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Rights and wrongs of restructurings

Brian Green, KPMG

Ian Fletcher, British Property Federation

Peter Hansell, Cairn Capital

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Asset management for recovery

Jon Gershinson, Allsop

Martyn McCarthy, Valad

Matthew Grefsheim, Hatfield Philips

Andrew Blackshaw, Deloitte

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What is the future of CMBS?

Peter Sudell

Executive Director

BNP Paribas Real Estate

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Projected scenarios: How does this recession compare?

Joe Pitt, BNP Paribas Real Estate

Barry Gilbertson, PwC

Richard Barkham, Grosvenor

John Richards, British Property Federation

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Documents