CAPITAL VIEWS

TRENDS FOR THE MARKET IN 2015

RIDING THE CREST OF A WAVE

Cushman &
Wakefields
assessment
of the EMEA
Capital Market
for 2015

Our estimates for the

market continue to be pushed
higher as both the supply and
the demand outlook improve.
With volatile stock markets
and rising liquidity boosted by
quantitative easing, the push
to demand is already evident
and the boost to supply will
come from deleveraging banks
and businesses as well as
profit taking and development.
Our central forecast is a 20%
increase to nearly 250bn
- potentially making 2015
the second best year ever for
volumes. However with the
scale of liquidity were now
seeing, that could easily be
beaten and the market will be
setting a new all-time high by
2016 at the latest.

Further strong growth in activity forecast

Investment volumes in EMEA are forecast to increase 20% next year to 247bn from an estimated
206bn this year. Demand is already strong but with fund allocations still increasing, occupational
markets stirring in many cities and finance markets growing more competitive, markets will be
even more liquid in 2015. What is more, short-term concerns such as stock market volatility, fears
of deflation and limited economic growth could all point to yet stronger demand for property due
to its relative yield and risk profile. Retail and logistics will win further market share but quality
property in all sectors will be in demand and a notable increase in the appetite for development is
to be expected, focusing initially on core office markets in the region.

Chart 1 Property Investment in EMEA

Source: Cushman & Wakefield, KTI, RCA, and Property Data

Upside potential

The boost to liquidity to be provided by quantitative easing (QE) as well as the aftermath of the
ECB bank stress tests which both removes a constraint on the market from this year and paves
the way for more sales as banks take action- could produce conditions for significantly stronger
activity.

A growing market

Alongside loan and asset sales and deleveraging, profit taking and some new development should
help to boost the range of investment opportunities available in the market. Interest in a broader
range of markets and sectors should also continue and while some investors are being driven to
this by necessity just to find opportunities, others are actively seeking to embrace more risk in
pursuit of higher returns. Hence, while demand at the core end of the market will remain very
significant, an increased focus on core-plus and value add opportunities is to be expected.

Demand will continue to spread

Southern markets, notably Spain, led the upturn this year with volumes up an estimated 55%. This
will continue in 2015, with forecast growth of 45-50%. Other areas more over-looked in 2014
should see better demand however, with the Nordics up a forecast 25% after a 7% increase this
year thanks to their strong appeal as markets of low structural risk but also good relative growth
prospects. CEE markets are also expected to bounce back, rising 30-35% after a 15-20% fall this
year. Russia and some non-EU eastern markets may be held back by events in the Ukraine as
well as commodity prices and general emerging market uncertainty. However, Central Europe is
a different and more promising short-term prospect and other eastern markets within the EU
may see stronger interest where the right stock is available. In Western markets meanwhile, we
currently forecast growth of 15%, modestly down on the 20% increase seen this year reflecting the
fact that these markets have already seen a fuller recovery.

The global focus on

Europe of the last 1-2 years
is expected to slowly reduce
as other areas demonstrate
stronger economic growth, a
higher level of investor risk
tolerance is sustained and
an unwinding of quantitative
easing reduces global
liquidity. Parts of Asia and
the USA in particular are
like to attract more EMEA
investment. Short term
however, increased QE in the
eurozone as well as a greater
supply of opportunities
in Europe as banks and
companies restructure and
deleverage, will serve to
keep the eye of the world
on Europe for longer than
expected.

Chart 2 Targets for Investment

Source: Cushman & Wakefield, KTI, RCA, and Property Data

Yield compression still to come

With strong competition to buy, prices are set to carry on rising, with prime yields forecast to fall
25-50bp over the year to an average across the sectors of 5.6% in larger cities.

Changing needs drive the occupier

Occupational trends in many markets are supply driven but needs are changing thanks to new
technology and new living, working and shopping patterns and this will be a key driver of demand
across all European markets.

Rental Growth to make a slow reappearance

While low and volatile economic growth will keep businesses focused on affordability, demand
for efficient space will start to push rents up and lower commodity prices may make this process
easier if build costs ease. Led by Western markets, prime rents are expected to grow 2-3% in
2015 with good growth for dominant high streets and shopping centres although offices may
lead over the cycle against a backdrop of limited new supply. Better than historic industrial
performance is forecast as ecommerce raises the role of logistics but a risk of secondary market
underperformance will persist in all sectors.

Plantation Place South, London, UK

ITS ALL ABOUT THE LEASE

Economic conditions slow but

improved

Chart 3 Economic Outlook

Source: Cushman & Wakefield, Consensus Economics, Oxford Economics

While a bubble may form further out driven by bond
markets and excess liquidity, for 2015, bond yields look likely to
stay low, putting further pressure on property yields in the process.
Pricing will adjust anyway to the new reality of the market in
which liquidity and income sustainability should be more highly
rewarded in their price than they have been in the past and it will
be those markets where income sustainability and security are
below average that will be most subject to the bubble risk.

Ongoing uncertainty, geopolitical risks and

deflation will hold back growth but a slow if
hesitant recovery is nonetheless continuing and
2015 should in general be a better year than
2014. For one thing, domestic demand in most
of Europe should be boosted by improving
purchasing power thanks to lower inflation and
firmer labour markets. At the same time, the
fall in the euro and lower input prices should
help production. The credit cycle also appears
to have bottomed, with increasing bank lending
and money supply pointing to a firming in
conditions.

Deflation risk still to be faced

Inflation will fall further thanks to tumbling

energy prices and this will keep the spotlight
on deflation despite the short-term benefits
it brings to households and producers. This
should slow the pace at which monetary policy
normalises and indeed prompt further easing
in the eurozone. With investment markets
already some way ahead of occupier cycles
this clearly brings the risk of a bubble but with
liquidity so supportive, this will only be clear
after 2015.

Gran Via, Madrid, Spain

The risks in todays

market are hard to judge
some in fact are hardly visible at
present and others will bubble
up, particularly perhaps in the
political sphere this year. As a
result, its all about the lease for
many investors and they need
to make sure their strategy is
as future-proofed as it can be
and that means focussing on
property that meets occupiers
needs and is flexible to change.
Only the best property can be
well placed to ride out a period
of inflation or disinflation.

Investors need to expand

further their scope of investment
to take in new markets and
new sectors and 2015 should
mark a further move into areas
such as multifamily residential
and healthcare as erstwhile
alternative sectors start to go
mainstream.

Chart 4 Sources of Investment

Source: Cushman & Wakefield, KTI, RCA, and Property Data

Europe at the heart of global capital flows

With improving supply and demand and increased liquidity courtesy of QE, Europe will continue
to attract more than its fair share of global investment, albeit this may grow at a somewhat slower
pace than in 2014 while domestic and regional spending will increase as fund allocations are raised.
Overall, cross border investment is forecast to rise 30% versus 15% for domestic spending, with
global investment up 30-35% and regional buying up by 20%.

Skylight, Warsaw, Poland

MARKET DATA
PRIME YIELDS Q3 2014

CORE EUROPE

RECOVERING
FRINGE
EUROPE

BENELUX

CENTRAL
EUROPE

EASTERN
EUROPE

INVESTMENT VOLUMES (mn)

SHOPS

SHOPPING
CENTRES

OFFICES

WAREHOUSE

YEAR TO
SEP 14

GROWTH
OVER YR TO
Q3 14

RECOVERY
VERSUS PRIOR
PEAK

Germany

3.50%

4.40%

4.00%

6.30%

37.2

27%

61%

UK

2.50%

4.50%

3.50%

5.00%

75.5

46%

77%

France

3.50%

4.50%

4.00%

7.00%

20.2

26%

67%

Switzerland

3.70%

4.10%

3.80%

5.60%

3.7

-36%

247%

Austria

3.10%

6.00%

4.75%

7.25%

2.4

299%

86%

Denmark

4.10%

6.00%

5.00%

7.50%

3.3

-24%

87%

Finland

5.00%

5.00%

5.25%

7.50%

4.0

133%

61%

Norway

4.75%

5.25%

4.75%

6.25%

5.8

-11%

70%

Sweden

4.50%

5.00%

4.50%

6.50%

12.7

7%

69%

Italy

5.00%

7.00%

5.75%

8.25%

4.0

54%

35%

Spain

4.50%

5.50%

5.50%

8.00%

4.5

141%

38%

Portugal

6.00%

6.75%

6.25%

8.25%

0.3

4%

25%

Ireland

4.50%

6.00%

4.90%

6.75%

3.8

181%

140%

Greece

7.00%

8.30%

8.60%

11.00%

0.9

149%

136%

Belgium

4.25%

5.35%

6.25%

7.00%

2.7

6%

45%

Netherlands

4.10%

6.10%

6.20%

7.60%

7.1

78%

62%

Luxembourg

5.00%

5.50%

5.20%

8.50%

0.9

27%

32%

Poland

7.50%

5.50%

6.00%

7.50%

2.9

-25%

66%

Czech Republic

5.00%

5.50%

6.25%

7.25%

1.0

-1%

44%

Hungary

6.75%

7.25%

7.25%

9.00%

0.5

36%

26%

Slovakia

7.50%

7.25%

7.25%

8.50%

0.4

87%

91%

Bulgaria

9.25%

9.25%

9.00%

11.75%

0.2

15%

16%

Romania

9.25%

8.50%

8.50%

9.75%

0.9

350%

46%

Russia

13.00%

9.50%

9.25%

11.50%

4.0

-26%

83%

Turkey

5.80%

7.00%

7.00%

9.00%

0.9

-28

27%

NOTE:
Yields: THE FIGURES INCLUDED IN THE TABLE INDICATE THE VIEWS OF CUSHMAN & WAKEFIELDS CAPITAL MARKETS TEAM AND RELATE TO THE VERY BEST PRIME PROPERTY IN EACH
MARKET CATEGORY. ALL RATES ARE FOR ILLUSTRATIVE PURPOSES ONLY. THOSE SHOWN IN RED ARE ON A NET BASIS.
Investment Volumes: Source Cushman & Wakefield, Property Data, RCA and KTI

TO DISCUSS YOUR IMMEDIATE

NEEDS PLEASE CONTACT:

David Hutchings
Head of EMEA
Investment Strategy

+44 20 7152 5029

david.hutchings@eur.
cushwake.com

Jan-Willem
Bastijn

CEO, EMEA Capital

Markets
+31 20 800 2081
janwillem.bastijn@
eur.cushwake.com

The Report

This report has been prepared by David Hutchings, head of the Investment Strategy team in
Cushman & Wakefields EMEA Capital Markets group, based on desk research together with input
from Cushman & Wakefield professionals in the Capital markets teams across Europe.
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