Colliers 2013 Global Investor Sentiment Report-En

7/30/2019 Colliers 2013 Global Investor Sentiment Report-En

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2013 Global Investor Sentiment


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Introductionby: Tony Horrell

The Global Pictureby: Tony Horrell

Asiaby: Antonio Wu

Australia & New Zealandby: James Quigley

Canadaby: Milton Lamb

EMEAby: Tony Horrell

Latin Americaby: Ricardo Betancourt

United Statesby: Warren Dahlstrom

Appendix

About

03

04 - 07

08 - 11

12 - 15

16 - 19

20 - 23

24 - 27

28 - 31

32 - 33

34

Table ofContents


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Introduction

03 Colliers International | 2013 Global Investor Sentiment

For the past three years, we have asked majorinvestors across the spectrum rom institutionalto private, representing a broad cross section oproperty investors globally, or their outlook atthe global and regional level or the coming 12months and beyond.

This years respondents included nearly 500investors rom the US, Canada, Latin America,Australia/New Zealand, Europe, Asia and theMiddle East. Overall, the majority o investors

indicated they wanted to expand their portolios.However, with risk profles varying by sectorand location, wealth preservation remains a keyeature o the investment landscape or the nearuture.

A noticeable trend this year was that majorinvestors are becoming more critical whenselecting their investment locations. This wassupported by the overarching themes we oundwhen asking respondents about their investmentstrategies:

1. A ocus on home regions2. Those that are looking to invest

internationally are ar more specifc aboutthe individual markets and sectors they willconsider.

Additional key fndings rom our survey include:> Despite uncertainties across the global

markets, investors remain positive.

> Compared with last year, investors rom Asia,Latin America and the Middle East have moreambitious expansion plans.

> Investment sentiment improves signifcantly overthe medium term.

> A lack o quality stock is impacting on somemarkets.

> The popularity o sae haven destinations like,London, Paris, major German cities and NewYork will continue.

> Risk aversion, secure income and wealthpreservation will remain a key part o theinvestment strategy or many unds and,particularly, high net worth individuals andprivate buyers.

> The availability o fnance is an issue in someregions, but debt is available at a price to thosewho meet stringent conditions.

> 2013 will see more new lenders and mezzanineunds partially replace the void let by retreatingmainstream banks.

> Generally, 2013 will be a year o continuedrecovery, with investment volumes showingmodest growth as investors accept the newnorm and sentiment improves.

With more than 12,000 Colliers proessionals in 62countries; we are able to provide our clients withexpert capital market advice at a local, regionaland global level. I trust you will fnd the results oour survey o interest.

Tony Horrell


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Comparison o Q1 to Q3 investmenttransactions 2007 - 2012The

GlobalPictureInvesting or medium tolong term perormanceInvestors are looking eyond current market weaknesses and investingor medium to long term perormance on the ack o anticipated steadyeconomic improvement, with the Pacic and EMEA regions showing amarked improvement.

Most investors in all regions classied themselves as low to moderate risktakers. Investors in the United States, Asia and Latin America were the mostlikely to take on more risk in the coming six months in order to generatehigher returns. Australia and EMEA respondents were more cautious with themajority unlikely to take any undue risk.

Investors in the more mature Western markets o the United States, Canadaand Western Europe were the most cautious, targeting IRRs o less than 10%.This rises to 10-15% in Australia / New Zealand and 15-20% in Latin Americaand MENA. However, in Asia and Eastern Europe the majority o investorsare targeting IRRs in excess o 20%, a reection o higher risk and higherdevelopment led activity.

The survey suggests that, gloally, the most attractive region to invest inimmediately is the United States, ollowed y Asia and Western Europe.These regions ranked signicantly higher than Eastern Europe, the MiddleEast and South Arica.


2007 2008 2009 2010 2011 2012

350

300

250

200

150

100

50

Americas EMEA

b

ILLIONS

Source: RCA

Asia Pacic

RCA transactions data comparing the value of transactions for Q1 to Q3 show Asian level being

well ahead of the 2007 market peak since 2010. EMEA and the Americas transaction values have

recovered from 2009 lows, but still remain at about 40% of the 2 007 high.


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Dominant target IRRrange (internal rate oreturn) or each region

Capital primarilyremains localIn general, investors in almost all regions preerto invest locally. However, US and Canadianinvestors were the most likely to invest oshore(see tale on page 5). I not investing locally,gloal investors are most likely to invest inWestern Europe. The exception to this wasAsian investors who were most likely to invest in

Australia/New Zealand.

In all regions, the dominant source o capital waslocal. However, Asian, EMEA and Latin Americaninvestors were the most likely to access undsrom outside their regions. Asian investorssourced just 40% o unds locally with theUnited States (20%) and Western Europe (19%)providing signicant capital. In Latin America,the US provides almost a third o all unding withWestern Europe providing just under 15%. Canadais almost sel-sufcient with around 78% oinvestors unding themselves locally.

Sector and locationpreerencesWhile the ofce sector was the most popularsector to invest in across most regions, theexceptions were the United States and LatinAmerica, where the Industrial and Logistics sectorwas a more popular option.

Other sectors that gained credile mentions

were shopping centres (Australia / New Zealand,Canada and Western Europe), Opportunistic (Asia,Canada and EMEA) and Residential Development(Asia, Australia / New Zealand, Eastern Europeand MENA).

Debt is available -at a priceThe majority o investors in all regions werelikely or highly likely to use det to leverage theirexposure in uture investment decisions. Acrossregions, investors in Asia are the most likely to usedet while the least likely were Latin Americaninvestors.

Lending conditions were more variale. In LatinAmerica, lending conditions were most positivewith oth underwriting standards perceivedto have loosened and cost o unding to havedecreased. All other regions are currentlyexperiencing stricter lending criteria althoughdecreased costs o unding were apparent inAustralia, Canada and the US. The least positiveregion was Europe where, not surprisingly,

10-15%

15-20%

Under 10%

Aove 20%

The reality and cost o securingdebt will remain a signicanthurdle in most EMEA markets

or some time.


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US and Canadian commercial real estate international ows year to October 2012 ( millions)

Country ofOriginD

Europe Asia Latin America Africa Australia

Canada 2,267.7 79.3 152.6 0 2,432.8

USA 12,877.9 2,116.7 279.7 0 562.3

Total 15,145.6 2,196.0 432.3 0 2,995.1

Source: RCA

As noted above, investors show a strong preference for investing in their respective home regions. Tis is

illustrated in the city preferences in the table below. Only London and New York feature as a top three choiceoutside their own EMEA region.

City investor targets

Asia Aus/NZ Canada USA Latin America EMEA

Shanghai Sydney Toronto New YorkRio deJanerio

London

Singapore Melbourne LondonLosAngeles

Sao Paulo Munich

Hong Kong Brisbane New YorkSanFrancisco

London Moscow

Source: Colliers International


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AsiaAsia looks extremely positive

in the next ve yearsThis year the Gloal Investor Sentiment Surveywas conducted rom the 24th Septemer to the5th Octoer 2012. This was an interesting time

given the Federal Reserve just announced the thirdround o quantitative easing (QE3), in an attempt

to stimulate economic and jo growth. At the sametime, the anticipated increase o market liquidity and

growing inationary pressure are going to impactreal estate assets in dierent degrees, thus aecting

Asian investors strategy going orward. The resultso this survey reveal exactly how Asian investors

perceive risk and return on their portolios and theattractiveness o various asset types in dierent

geographical markets.

Regarding the timing o real estate investment,our survey indicates that 37% o Asian investorsnd it is a good time to make major investments

in commercial property. However, the percentageis signicantly lower than other markets such as

the US (67%) and Pacic (66%) where the level oreturn is relatively attractive.

Asian investors (68.3%) believethat market conditions willimprove in the next 5 years...


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Investors remain keenon portolio expansionA vast majority (70%) o Asian investors are likelyto expand their property portolio and increasetheir level o investment. However, the majorconcern is the difculty o raising new equity(29.9%), ollowed y a lack o supply o or saleproperty (24.3%) and uncertainties due to theeconomic situation (22.4%).

Meanwhile, the majority o respondents (40.6%)

are looking to target returns aove 20%. Mostclassied themselves as willing to take moderaterisks over the past 6 months (55%) and are likelyto take more risks in the next 6 months (53%). Anincrease in target returns can e seen comparedto last year, when the majority o respondents(55%) were looking to target returns etween 10-15%. Asia and Eastern Europe were the only tworegions where the majority o the respondents arelooking to target returns aove 20%.

Asia is the most attractiveregion to Asian investorsIn general, Asian investors primarily source capitalrom the regions o Asia (40.3%), the UnitedStates (20.2%) and Western Europe (19.4%).On a orward-looking asis, the ndings o oursurvey indicate that 79% o the respondents wouldconsider the Asian region as their key investmentocus in the uture. Another 11% preers thePacic while the rest spreads across the USand Europe etc. An investment management

company ased in China mentioned their reasonor investing in Asia is ecause the region isstill in a ast-growing developing stage driveny uranisation and supporting governmentinitiatives. The same has een concluded in thesurvey that Asia is placed on the top spot y localinvestors in terms o the relative attractiveness ovarious regions around the gloe as a destinationor property investment.

100

L 6

Mhnx 6

Mhnx 12

Mh

nx 5Y

101.6

101.4

102.8

100.7

According to Colliers International PropertyInvestor Sentiment Index, the outlook in Asiastarts to look more positive in the long term.Most o the Asian investors (68.3%) elievethat market conditions will improve in the next5 years and only a small percentage (11.7%)elieves that investment conditions will decline.This shows that Asian investors are ratherpositive aout their investment opportunities inAsia or the coming 5 years.

Colliers InternationalProperty Investor

Sentiment Index Asia


Lkly

ulkly

Hhly Lkly

In the next 6 months,how likely are you to takemore risks in order toachieve superior returns?

12%

35%53%


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cautious approach that needs to e taken yinvestors in view o regional government policies.

Key consideration ormaking investmentThe ndings o the survey suggest propertymarket undamentals are the most critical actorsin the course o making investment decisions inAsia over the next 6 months. It diers rom thetypical top-down approach y individual investors

who usually place the overall economic growthin the region as the key actor o consideration.The explanation is that real estate markets in theregion have ecome increasingly segmented dueto the dierence in governments initiatives anddemand undamentals.

Debt nancing isaccessible but not cheapDet continues to e used y the majority oinvestors to leverage their exposure in utureinvestment decisions. Aout 60% o Asianrespondents are highly likely to use det asleverage. Only 13% o respondents indicated thatthey were unlikely or not likely at all to use detas leverage. An institutional investor ased inSingapore elt that property investments requiredet nancing, It is more a matter o whether the

cost o det makes sense.

The majority o respondents (42%) stated that thecost o det has not changed and a percentage(34%) stated that the cost o det has increased.On the other hand, a vast majority o respondentslast year (77%) elieved that the cost o det hadincreased, which shows a remarkale declinethis year.Looking at the lenders underwriting standardin the past 6 months, most respondents (41%)elieve that there have een no changes tolenders underwriting, while a percentage orespondents (39%) think that lenders creditunderwriting has tightened.

As a destination orproperty investment,

how attractive are eacho the ollowing regionsto Asian investors?

A preerence orChina marketsLooking at a more local level, most Asian investorswould consider Shanghai, Hong Kong, Singapore,Tokyo and beijing as the top ve cities ortheir investment ocus in the uture. Individualrespondents have chosen multiple cities includingrst-tier or second-tier cities in China and cities inthe Greater China region, indicating a preerenceon China markets in general.

Oces in urban locationsare the top picksAs an indicator o prospective investment owover the next 6 months, Asian investors wouldocus on ofce developments in CbD/uranlocations (25%) and opportunistic investments(17%). At the same time, 15% o the respondentsin Asia reported a ocus on industrial/logisticsopportunities. The main reason mentioned y alocal Hong Kong-ased investor or not lookinginto the residential su-sector is the more

verY

attractive

verY

unattractive

Relative attractiveness of each

region to Asian investors

3.5 5.0

1.0

4.72.5

3.4

2.8

2.6

2.4

2.7 3.0


Decreased

Increased

No Change

How has the cost odebt changed in thepast 6 months?

42%

34%

24%


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...most investors in Asia believe thatgood investments do exist in themarket but to nd good stock orinvestment is always a challenge.

The key challenge is tosource good investmentsWithin the long list o actors such as a change opolitical environment, direction o und ows andmarket volatility etc, most investors in Asia elievethat good investments do exist in the market utto nd good stock or investment is always achallenge. The typical issues such as the potentialthreat y the eurozone crisis and the election in

the U.S. and China have een requently talkedaout ut these are not rated y investors as theutmost important.

Looking orward, Asian investors remain positiveon the outlook or 2013. Asian investors elievethat real estate will continue to e a good hedgeagainst ination. The majority o them elieve thatater the third round o quantitative easing (Q3),in the U.S., developments in the domestic marketwill remain their main concern or real estateinvestment. A private investor ased in Singaporementioned that local property undamentals ineach domestic market are the key consideration

or investment. The investor elieves that therewill e a clearer direction on how to act in 2013since most elections have already taken place thisyear. Meanwhile, access to nance is expected toe easier in 2013 as the supply o credit is readilyavailale rom most Asian anks.


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Australia &New ZealandAustralian investmentactivity to remain strongThe majority o Australia/New Zealandrespondents (66%) elieve that now is agood time to undertake major investmentsin commercial property. Despite this, mostinvestors elieve that there has een littleimprovement in market conditions overthe past six months with 84% stating thatconditions had either declined or stayedthe same.

The outlook starts to ecome more positive.Although over the next six months, it isnot expected to change signicantly, the12 month outlook starts to improve with30% o respondents expecting to see someimprovement. Within ve years, almost all(90%) respondents expect to see a muchmore positive market.

Within ve years, almost all (90%)respondents expect to see a muchmore positive market.


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Transaction activity year to date shows thatinterest in Australian property rom local andoshore investors remains solid with 2012 levelsexpected to slightly exceed the $12.3 illion USDtransacted in 2011. Year to date, investmentvolumes in Hotels, Ofce and Retail remainstrongest. Oshore investors now account or halo all total volumes, signicantly higher than the18% achieved in 2008.

Expansion plansremain consistentwith previous yearThe proportion o respondents looking to expandtheir portolios appears to have plateaued with56% indicating that they plan to expand their levelo investment, compared to 60% last year. In2010, 46% were looking to expand.

Det is typically used y 80% o investorssurveyed to expand portolios and it is thereorenot surprising that prolems with raising newequity was the most commonly cited reasonpreventing investors rom expanding their

portolios (39.5%), consistent with last year.There have een slight improvements in Australianinvestors aility to raise equity rom last year.This is consistent with our knowledge that manyA-REITs have now re-capitalised and the cost odet has een reducing.

A lack o supply o or sale property was alsocited as a prolem or many investors (25%).In Australia at present, oth oreign and localinvestors are targeting similar types o low riskassets including prime grade ofce uildings,large regional shopping centers and well located

industrial assets. This has led to a signicantdivergence in yields etween prime and secondarygrade assets. It is expected that this will changeover the next 12 months given the increasingnumer o local investors re-entering the market.

100

L 6Mh

nx 6Mh

nx 12Mh

nx 5Y

99.7

100.4100.4

104.3Colliers InternationalProperty Investor

Sentiment Index -Australia/New Zealand


The majority o Australian andNew Zealand respondents arelooking to target returns between

10% and 15%...

13

ulkly

66%

26%

Lkly

4%

Hhly lkly

4%

n ll lkly

Colliers International | 2013 Global Investor Sentiment


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Australian investorsprepared to und ofshorebut not buy ofshoreAustralian/New Zealand investors source capitalrom a variety o regions. While Australia/NewZealand was the most oten cited source (49%),a high proportion also source capital rom Asia(19%), United States (13%) and Canada (10%). Itis likely that a lot o this unding is rom oshorepension unds. Key examples include CanadianPension Plan Investment board providing $1 illionUSD worth o unding to the rst two towerso Lend Leases barangaroo development andNational Pension Service o Korea partnering withDEXUS Property Group or the estalishment o a$360 million USD portolio o Australian industrialproperties.

Australian/New Zealand investors preer to investlocally with Australia (53%) and New Zealand(11%) eing the dominant countries or their unds.At present, ew are investing in Asia with Europeand North America running ahead o this region

as preerred investment options. It is likely thatthis will not change signicantly over the next 12months although some local pension unds haveindicated that they are prepared to look gloallyor investment opportunities. Given that Australiahas the ourth largest pension system in the world,any movement in this particular investor to lookgloally could e a signicant change inthe market.

Although investors are currently not investing inAsia, this was considered to e highly attractiverelative to other regions, ollowing Australia/

New Zealand.

At a more local level, Sydney is overwhelminglythe preerred destination with 63% o respondentsindicating that they see this city as eing thesingle gloal city they would most like to investin over the next 12 months. This was ollowed yMelourne, then brisane and then Perth.

Ofce is the preerred su-sector or investmenty 28% o respondents. A key change romlast year has een interest in Industrial andLogistics with this now eing a target or 24%

As a destination orproperty investment,

how attractive are eacho the ollowing regionsto Australian & NewZealand investors?


verY

attractive

verY

unattractive

Relative attractiveness of

each region to Australia/New

Zealand investors

Australian investors aresome o the most riskaverse in the worldAustralian/New Zealand investors are some o themost risk averse in the world. The majority (70%)have indicated that they are unlikely or not at alllikely to take risks to achieve superior returns overthe next 6 months. This is consistent with thetypes o assets that local investors are targetingas mentioned previously.Given the ocus on low risk assets, it is notsurprising that the majority o Australian/New Zealand respondents are looking to targetreturns etween 10 and 15%, a higher targetIRR compared to the US and Canada ut lowerthan Asia and Eastern Europe. Most classiedthemselves as either low (32%) or moderate(46%) risk takers.

64%12%

24%

Decreased

4.6 5.0

1.0

3.62.4

3.1

2.6

2.0

1.9

2.9 2.7

Increased

No Change



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...global volatility was generally notseen as making property investmentdecisions more dicult.

o respondents. Residential developments andshopping centers were also highlighted aspreerred areas o ocus y 14% and 12% orespondents respectively.

The interest in ofce is consistent with nearlyall markets gloally and is evident rom oshoreinvestment in Australian property which in 2012has so ar accounted or 50% o all transactionvolumes. The largest deal undertaken this yearhas een the unding o Lend Leases barangaroo

ofce towers mentioned previously. Australianhotels are also o signicant interest to oshoreinvestors as evidenced y Starhill REIT andShangri-La Asia oth purchasing this typeo asset.

In making property investment decisions over thenext 6 months, property undamentals are the keyconsideration (4.6 out o 5). This is ollowed ythe economic growth o a region (4.4 out o 5).The actor which is least likely to e considered isthe currency risk/exchange rate (2.6 out o 5).

These actors are relatively consistent in allregions gloally. O interest to Australia, giventhe strong appreciation o the Australian dollar, isthe lack o concern investors have with regardsto currency risk. Anecdotal evidence in Australiasuggests that 12 months ago, oshore investorswere typically more concerned aout this thanthey are currently. This means that oshoreinvestors are either hedging their investments, orexpect the value o the Australian dollar to remainhigh in the medium term.

Debt is cheaper but not

easier to accessDet continues to e used y the majority oinvestors to leverage their exposure in utureinvestment decisions. Only 20% o respondentsindicated that they were unlikely to use detas leverage.

A larger numer (64%) o respondents statedthat the cost o det had decreased. In 2011, just30% elieved that this was the case. Although it ischeaper to access det, it is not necessarily easier.62% o respondents elieve that there has eenno change to lenders underwriting standardsover the past 12 months, while 22% elieve that

standards have tightened.


The types o assets that lenders will typicallyprovide unds or are generally low risk and thisis also a key inuence on what investors aretargeting. As mentioned previously, most investorsare ocused on prime assets.

Good investments areincreasingly more dicult

to ndFurther reeing up o underwriting standardswould no dout have a positive impact on themarket. Most investors see det as a desiraleway to leverage investments and there is no doutthat restriction to this is a key prolem or manyAustralian investors.

Competition or good investments was alsohighlighted as a prolem. This is no doutexacerated y many lenders ocused on providingunds only or low risk investments, ut also aocus y most oshore investments on the sametypes o assets. It is likely we will continue to

see a divergence o the prime to secondary yieldspread as a result ut also a renewed interest insecondary assets as the yields ecomemore attractive.

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Canada

The majority o investors eel thatconditions will remain the same during thenext 6-12 months, with condence risingover the 5 year horizon.

Domestic investorsremain active and

positive in their outlookAlthough the gloal economy is working throughchallenges, Canada has een a solid perormer,

in relative terms and our Gloal InvestorSentiment Survey nds that it is viewed as

highly attractive target or property investment.Canadian investors outlook in the near term

is positive, while only 20% o respondents

expected to see an improvement in economicconditions, this must e viewed in the contexto a market that has solid undamentals and hasseen rents and values recover to pre-recessionlevels in most areas. The majority o investors

eel that conditions will remain the same duringthe next 6-12 months, with condence rising

over the 5 year horizon.


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Majority of investors inportfolio growth modeThe overwhelming majority o investors, at 78%,are planning to expand their portolio in the nearterm. In slight contrast to their expansionarymindset, 40% o Canadian respondents think it isa good time to invest while 52% are neutral andthink it is neither a good time, nor a bad time.The sample suggests that 54% o investors arewell capitalized and consequently see the supplyo or sale property as the key challenge, while

26% see debt nancing and the ability to raisecapital as something that may present a hurdleto be overcome when executing on their portolioexpansion plans.

In line with their global peers, 71% o Canadianrespondents suggested that they were likely orhighly likely to use debt to leverage their exposure.Supporting their intent to utilize debt is the actthat Canadian investors are in an enviable positionwith respect to cost o debt, with 91% respondingthat the cost o debt had either remained the sameor decreased during the past 6 months.

Canadian investors arewilling to take on more riskIn the search or returns, a notable proportion oinvestors are willing to move up the risk curve. Inthe next six months, 40% o Canadian respondentssaid they were likely to take on more risk while 53%were more cautious and unlikely to take on unduerisk. This position on risk is urther evidencedin the sub-sector ocus, with 23% o thosesurveyed looking at CBD Oce as their top target,ollowed by 18% who were seeking opportunistic

acquisitions. A large contingent was also ocussedon logistics (15%) and retail (15%) properties.

Refecting a conservative view on returns, 58% oCanadian respondents were targeting IRRs in thesub 10% range. Coupled with the next IRR range, aull 76% had IRR targets o less than 15%, which isin stark contrast to regions such as Latin Amer icawith 57% targeting IRRs o 15 - 20%, or Asia with45% looking or returns in excess o 20%. Theseresults are aligned with the appetite or risk seenabove, with a ocus on CBD Oce assets, whilea minority were on the hunt or opportunisticacquisitions.

100

Last 6

Months

Next 6

MonthsNext 12

Months

Next 5

Years

100.2

102.3102.6

104.1

Colliers InternationalProperty Investor

Sentiment Index Canada

Market activity to date in 2012 indicates that theyear is on track to meet or exceed the commercial

transaction volumes last seen in 2007. Both2011 and likely 2012 have seen record amounts

o capital raised by REITs and public real estatecompanies in the Canadian markets, which has

been deployed into acquisitions and renancingo portolios. Data rom Real Capital Analytics or

the year to date (Jan - Oct 2012) indicates a 17%increase in commercial transaction volumes.



Unlikely

53%

40%

Likely

Highly likely

5%

3%

Not at all likely


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(14%) and New York (8%) ollowed y Edmontonand Calgary at 5% each on the strength o thatregions resource industry.

Analysis o RCA data or the year to date(YTD) paints a clear picture o Canadian puliccompanies and REITs eing the dominant uyertype with 59% o acquisitions, ollowed yinstitutional investors with 25%. Cross orderuyers made up only 3% o the YTDacquisition activity.

Property undamentals remain the most

important consideration (4.6 out o 5) inguiding property investment decisions. This isollowed y the economic growth o a region(4.3 out o 5). While currency risk is a populartopic o conversation, respondents were notoverly concerned with currency risk/exchangerate eing the lowest rated (2.3 out o 5)consideration. The conclusion drawn or thisnding is that those investors who venture crossorder have a strategy in place to hedge againstcurrency uctuations.

Availability and terms odebt are criticalAs stated previously, 71% o respondents intendto use det to leverage property purchases. Inthe gloal context this is an area where Canadianinvestors have a distinct advantage, with 61%indicating that underwriting standards haveloosened, or remained the same during the past6 months. Further to the avorale underwritingconditions, a whopping 91% said that the cost odet had either stayed the same or decreased.

Same or etter is signicant in a market wherethe cost o det was already at historically lowlevels, enaled y the crisis level ond yields.It is this availaility and low cost o det that hasthe Canadian domestic market so active and hasprompted the concern that a lack o property orsale is the iggest ostacle to portolio growth.

The shortage o investment property in the markethas resulted in Canadian investors venturing crossorder in search o opportunities and returns,some or the rst time.

As a destination orproperty investment,how attractive are eacho the ollowing regionsto Canadian investors?

verY

attractive

verY

unattractive


region to Canadian investors

Domestic sources ocapital are the normFor most Canadian investors, the lions share ocapital (78%) is raised at home. With smalleramounts eing sourced in airly equal proportionetween the United Kingdom with 8% and the USand Asia tied at 6% each.

For Canadian respondents the domestic market isthe key investment ocus (58%), ollowed y theUS at 20% and Western Europe with 12%. Gloal

respondents ranked the top three markets verymuch the same, with the US eing most attractive,Canada in second place, ollowed y WesternEurope.

I target investment markets are roken downurther, the desire to make acquisitions inthe more stale nations ecomes clear withrespondents looking to Canada (53%), UnitedStates (21%) and the UK (11%). When asked whichgloal city in which they would most like to investthe Canadians chose Toronto (62%), London

Decreased

2.4 5.0

1.0

2.22.2

4.2

2.6

1.7

1.5

4.8 2.9

Increased

No Change



43%48%

10%


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...timely and well selectedacquisitions in recovering marketswill stand to generate excellentreturns.

Good investments exist,but are more dicultto ndCanadian investors agreed strongly that adisproportionate amount o capital has owed intosae havens (4.5 out o 5), ollowed closely y therelated statement that capital values in Europesperiphery represent a good opportunity (4.5 outo 5). Investors also agreed strongly that goodinvestments exist, ut are more difcult to nd(4.3 out o 5). This suggests that investors arestarting to look at secondary opportunities. Doesthis indicate a concern or core values ecomingoverpriced or due or a correction? One Europeanmarket oserver posed the question, would yourather e uying at historically high values in thecore or historically low values in the secondarymarkets? O course, timing and asset selectionare everything, ut it would appear that timely andwell selected acquisitions in recovering marketswill stand to generate excellent returns.


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EMEAEMEA attractive target orproperty investmentDespite ears o a possile reakup o all or part othe eurozone, our Gloal Investor Sentiment Surveysuggests that the EMEA region is an attractive targetor property investment. Over the next 12 months,36% o respondents expected to see an improvementin economic conditions, rising to 88% o respondentsover a ve year period. Respondents rom the CEEand MENA regions were generally more positive intheir outlook than the Western European investors,

perhaps ecause they all outside the eurozone.Compared to respondents rom other regions, EMEAinvestors are some o the more positive respondentsin their outlook over the next six months.

Market activity to date in 2012 reects the weakerinvestor sentiment evident earlier in the year, with anumer o key EMEA markets showing limited growthor alling transaction volumes. Data rom RCA orthe year to date (Jan - Oct 2012) indicates decliningvolumes in Germany (-35%), France (-27%) andPoland (-39%), with only modest increases in the UK(4%) and Sweden (7%).


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Portolio ExpansionPlannedThe consensus view is that it is a good time toinvest, ut this is caveated y the assumptionsthat nance is availale and suitale opportunitiesarise. Presently, investor ocus remains on saehaven markets.

Over hal (56%) o the EMEA respondents thinkit is a good time to invest in the region while 38%think it is neither a good time nor a ad time. The

sample suggests that roughly hal o investorsare well capitalized and looking or opportunities,while a large minority are looking through currentmarket conditions and reviewing opportunities onan asset y asset asis.

Portolio expansion was planned y 59% o thesample, although 26% said this was linked to theaility to raise unds. Supply prolems were alsocited y 26% as a key market constraint. Exampleso expansive investors include sovereign wealthunds, Norges bank IM and Qatari InvestmentAuthority, institutional unds such as AXA REIMand TIAA-CREF and opportunity led vehicles like

blackstone. Despite considerale negative pressaout the availaility o ank nance, interestinglyonly 22% o respondents indicated that accessto det nance was a prolem. This particularsurvey response seems counter to Colliers ownknowledge and experience, which suggeststhat signicant restraints to lending remain inplace across most EMEA markets. This might eexplained y a predominantly core / core plusinvestor sample ase who will typically havelower det / LTV requirements and good existingrelationships with det providers, so det nancewould not necessarily e such a constraint. With

77% o respondents suggesting that they werelikely or highly likely to use det to leverage theirexposure, this appears to e the case. The ailityo investors to meet their expansionary amitionscomes more into question in relation to the costo det, as some 40%+ o respondents have citedincreasing det costs over the last six months.


Investors prepared to takeon more riskIn the hunt or higher returns, a signicantproportion o investors are prepared to move upthe risk curve, ut caution remains the watchword. In the next six months, 39% o EMEArespondents said they were likely to take on morerisk with 59% unlikely to take on undue risks. Thismirrors the core and core-plus nature o the ulko purchases in the market recently, somethingthat is likely to continue in the year ahead, with

distressed det deals also likely to ecomemore prevalent.

Overall, 27% o respondents are targeting IRRsin excess o 20%. This gure is oosted yaggressive return expectations in the less matureCEE and MENA regions, where development isoten the route to portolio expansion. The majorityo the sample responses were rom WesternEuropean investors, who have a more soer viewo market conditions, with 45% targeting IRRso 10% or less and only 9% targeting in excesso 20%. This suggests that Western Europeaninvestors are adopting a relatively low risk strategy

Over hal (56%) o the EMEArespondents think it is a goodtime to invest in the region...

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Western Europe is the primary ocus orinvestment (34%) rom the EMEA respondentsand is within the top three regions, ater the USand Canada, ased on all responses gloally.Whilst western Europe came out on top overall,each region within the EMEA region exhiiteda strong preerence or investing in its hometerritory.I target investment markets are roken downurther, the dominance o perceived staleinvestment environments ecomes clear withrespondents citing an investment ocus on theUK (13%) and Germany (9%). The distriution ocities is varied with, again, each EMEA territorytending to avour its home cities. However, Europeappears to attract more oreign investors thanother gloal regions.Analysis o RCA data or the year to date (YTD)shows a divergence o sources o capital currentlyeing invested in EMEA key city markets andunderlines Londons sae haven position orinternational capital protection. For London,74% o the YTD investment is rom internationalsources. Looking at the top six German cities, 60%o capital invested is rom domestic investors,

although international investment outstripsdomestic in Frankurt and berlin. Comparing somegloal cities, domestic investors account or 86%o investment YTD in New York City, 83% in Tokyoand 78% in Shanghai.

Unsurprisingly, CbD ofces are a preerred sectoror 20% o EMEA respondents, with shoppingcenters cited y 16%. At the recent Expo Realtrade air in Munich, the logistics sector was a hottopic o conversation as ecommerce continuesto drive new demand across much o the EMEAregion. It is certainly a more avored sectoramongst investors in the more mature economies,or example, Western Europe 16%, Australia 24%and the US 44%.

CEE and MENA investors oth express stronginterest in residential development, which ooststhe EMEA gure to 16%. This is to e expectedin countries where population growth, increasingincomes and uranisation is taking place. There isa strong demand or oth good quality, aordaleand middle income housing in these markets.There was also a good appetite or opportunisticpurchases (12%), particularly rom Western andCEE respondents. MENA respondents mentioned

As a destination orproperty investment,how attractive are eacho the ollowing regionsto EMEA investors?

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with one eye on opportunistic purchases. Thesurvey also shows that 44% o EMEA respondentswere either risk neutral or risk averse while 47%were not averse to at least moderate levels o risk.

Poland, as an emerging core investment market, isexpected to see transaction levels or 2012 matchthe 2.5 illion achieved in 2011. While this is stillmodest in the wider EMEA context, it is a marketwith great potential. Colliers recently marketed theWarsaw Financial Centre, gloally, and saw goodinterest in the property rom capital originating inthe US, Middle East, Asia and Europe.

Home sources ocapital dominateWithin the EMEA region, the majority o capital oreach territory, Western Europe, CEE and MENA,is raised in each o the respective homelands. Forexample, the sample o MENA investors raised100% o their capital in the MENA region. For theEMEA region as a whole, 30% o respondentsraised capital in Western Europe, with 17% raisingmoney in Eastern Europe and 9% targetingthe USA.

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hotels and other sectors which might includeinrastructure, healthcare and education and isrepresentative o less mature emerging marketswhere quality hotels, medi-centers and hospitalsare required to meet the needs o thechanging demographics.Property undamentals remain the strongestconsideration (4.4 out o 5) in guiding propertyinvestment decisions. This is ollowed by theeconomic growth o a region (4.3 out o 5). While

currency risk can be a drag on perormance, asubstantial part o the EMEA sample respondentsare operating in a single currency zone and itis thereore not surprising that currency risk/exchange rate was the lowest rated (3.0 out o 5)consideration. O course, the ability to hedge alsoreduces the risk.

Availability and terms odebt are criticalUnsurprisingly, 76% o respondents intend to usedebt to leverage property purchases. Some 43%elt that debt conditions had tightened over the lastsix months, with a urther 51% suggesting thatthere had been little change to what we know aredifcult conditions, with underwriting standardsand due diligence increasing. Furthermore, 41%said that the cost o debt had increased. WhileEMEA investors might like to use debt to undpurchases, the reality and cost o securing thatdebt will remain a signicant hurdle in most EMEAmarkets or some time.

Debt is being raised to

pursue diferent types oopportunityWhile much is undoubtedly targeted at directreal estate investment, there is a growing andsignicant tranche pursuing distressed debtopportunities, where potential returns canbe higher.


74% of investment in London isfrom international sources YTD.

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Debt is available, but the terms attached areincreasingly stringent and the borrower musttick all the boxes. The new paradigm aced byinvestors is lower LTV ratios in uture, perhapsas low as 50%. This is providing the opportunityor mezzanine debt unds to ourish AXA andPramerica are just two examples o unds takingadvantage o the challenging lending environmentin the region to provide mezzanine nancing.

A tale o a ew citiesEMEA investors agreed strongly that goodinvestments exist, but are more difcult to nd(4.11 out o 5). Investors also agreed strongly thateurozone uncertainty had impacted investmentwithin Europe (4.08 out o 5). This suggeststhat there is still a lack o condence amongstinvestors that a long-term solution to the debtcrisis is imminent. There was also strongagreement that a disproportionate amount ocapital had owed rom high risk nations to saehavens (4.05 out o 5).

In Europe, those sae havens include London,Paris and the major regional cities o Germanywho have attracted substantial internationalcapital. London, being outside o the eurozone, hasbeneted disproportionately. Not only is Londoncapturing pension und investments rom the US,Canada and Asia, but it is also proving undeniablyattractive to private buyers rom Asia and theMiddle East or whom wealth preservation isparamount.

With this sae haven status, also comes theconcern that at some stage there will be a pricingcorrection. Investors are aced with r iding out anyall in values or trying to sell in anticipation o amarket adjustment. Hold period and timing willplay an important role in maximizing returns.

While we have little evidence yet o the sharpslowdown in the French economy impactingon decisions to invest in Paris, it would not besurprising to see some sae haven ows divertrom Paris to other markets in 2013.


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LatinAmerica

Latin American investorsbullish on property marketMost respondents did not report negative opinionsaout the recent Latin American property market.

82% said conditions have stayed the same orimproved over the last six months. The majorityo respondents (63%) expect conditions to stay

the same or the next six months. 31% expectimprovement in conditions in the next six months.

That numer grows to 44% when the time horizonis expanded to a year. Only 6% o respondents

expect conditions to decline within a year.

Latin American investors are optimistic aout theuture, especially over the long term. A ull 87.5%

o respondents expect market improvement withinthe next ve years.


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Further investmentdictated by accessto capitalHal o all survey respondents elieve that now isa good time to invest in commercial property. 69%plan to increase their level o property investmentwithin the next six months.

One likely driver o this expansion will e accessto availale capital. Nearly 43% o respondentscited the aility to raise new equity as a condition

that would dictate portolio growth. Other primaryactors which might support or inhiit expansioninclude economic uncertainty (23.8%) andthe supply o properties or sale on the market(14.3%).

Most investors take onmoderate riskThe majority (57%) o Latin American investorstarget an internal rate o return o etween 15%and 20%, with 36% aiming or the more amitious20% return. A large contingent o investors (44%)report a willingness to take moderate risks overthe past six months in order to achieve theirtargeted return. A quarter o respondents haveneither taken risk nor shied away rom it. Smallpercentages on either side o the risk spectrumclaim to e either highly risk-adverse (6%) orextremely cautious (6%).

In what is likely good news or the Latin Americanproperty market, 56% o respondents indicated alikelihood o taking on more risk in the comingsix months.

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In the next six months, the most popular realestate su-sectors are industrial and logisticsproperties (50%) and CbD/Uran Ofce (38%).Latin American Investors ound Central and LatinAmerica to e the most attractive region orproperty investment, with the United States andAsia eing perceived as equally attractive secondplace picks. With the high economic growth ratesin many Latin American countries, it comes as nosurprise that these investors ranked the economicgrowth exhiited in a region as a primaryinvestment inuence. Property undamentals werea second actor ranked nearly as high.

A decreased costo capitalThe majority o investors said it is likely they willuse det to leverage uture investments with only19% o respondents indicating it was unlikely theywould take on det.

Perhaps the willingness o investors to take ondet is inuenced y the current low cost ocapital. 63% o respondents reported that thecost o det has decreased in the last six months.Only 19% reported a tightening o underwritingstandards in the past six months.

As a destination orproperty investment,how attractive are eacho the ollowing regionsto Latin Americaninvestors?

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region to Latin American investors

Industrial and logistics tobe the most popular nearterm subsectorsLatin American investors source capital rom threekey regions: Central and Latin America (33.3%),the United States (33.3%) and Western Europe(14.8%). The alance o capital is sourced rom avariety o other regions, however no respondentsreported Australia/New Zealand or South Aricaas a source o capital. Nearly all (94%) investprimarily in their home region o Latin America.

Furthermore, most respondents (94%) willcontinue to ocus on Central and Latin America inthe uture. brazil in particular is the primary targeto investment or these respondents, with thetarget cities eing Rio de Janerio and Sao Paulo.

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...a disproportionate amount ocapital has fowed rom high-risknations to sae haven markets.


Good investments arehard to ndMost Latin American investors agree that goodinvestments exist in the market, ut are moredifcult to nd. Respondents also agree that thesehidden investments are in higher competition inprosperous markets, thanks to volatility acrossdierent regions. They said that a disproportionateamount o capital has owed rom high-risk

nations to sae haven markets.

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United StatesU.S. investors expecteconomic growthU.S. investors are optimistic aout the utureo the property market. A majority also elievethat the uture is right or CRE investing. Manyeel that conditions have steadily improved overthe past 24 months. 60% o investors reportimprovement in the last six months and only 7%elieve conditions declined. Commercial propertysales volumes in the U.S. totaled $67 illion USDin Q3 2012, which was a 19% increase over the

previous year, according to data rom RealCapital Analytics.

In the next six months, more than hal (53%)expect that property conditions will improve,although 44% expect conditions to stay the same.That optimism also extends to the economy, where58% reported expectations o improvement inlocal economic conditions. As the time horizonextends, so too do positive expectations. A ull90.7% o investors expect the local economy willimprove within a ve-year time period.

As the time horizon extends,so too do positive expectations.


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Availability o propertiesis the biggest roadblockto investmentFew U.S. investors eel their investment strategywill hinge on any uncertainty in American politics.67% o U.S. survey respondents elieve that nowis a good time to make investments in commercialproperty. 74% o those surveyed plan to expandtheir property investments in the next six months.This numer is down slightly rom the 82% whoreported planned expansion a year ago.

What is the single largest roadlock to expansion?34% said nding availale properties is theiriggest constraint with a dearth o capital cited yonly 28%. Only 6.8% o U.S. investors ear thatpolitical uncertainty will aect their investmentactivity.

Investors will take on riskor increased returnsMany investors plan to take on urther risk in thecoming months. 58% reported they are eitherlikely or highly likely to take on more risk.

The majority o respondents (44%) report atargeted internal rate o return o under 10% andmost are willing to take on some risk in order toachieve returns. Over the past six months, 63%o respondents reported a willingness to takeon moderate risk in order to achieve targetedreturns, while 23% have een cautious and nottaken many risks. A small minority (7%) reporteda high willingness to take on risk in the past sixmonths. Targets were reported y respondentsregardless o how they capitalize those goals, sothe responses may include a mix o leveraged andunleveraged targeted rates o return.


Many investors plan to takeon urther risk in the comingmonths.

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Debt is plentiul andcheaper than last yearThe use o det as leverage is still a keycomponent in most investors strategies. Only23% o respondents reported that they wereunlikely or not at all likely to use det as leveragein uture investments. Access to det appearsto have ecome easier since last year. 63%responded that the cost o det has decreased inthe past six months. Most (62%) report that creditunderwriting standards have not changed. Accessto nancing was cited y a small minority as aroadlock to getting deals done.

As a destination orproperty investment,how attractive are eacho the ollowing regionsto United Statesinvestors?

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Top property sectors o ocus are industrial andlogistics (44%) and CbD/uran ofce (16%).Target cities or investment over the next sixmonths are New York (18%) and LosAngeles (16%).

Active uyers in the U.S. include Lehmanbrothers Holdings, which has ocused on ofceand apartment properties; private equity investorblackstone and the pulicly-owned retail realestate giant Simon Property Group.

Investors ranking actors that will most aectinvestment decisions put Property Fundamentalsat the top o the list, ollowed closely y theEconomic Growth o Region. Investorsappear least inuenced y currency risk, taxconsiderations and sovereign risk.

U.S. investment capital destined or oreign shoreshas avored core markets like berlin, Londonand Paris, according to data rom Real CapitalAnalytics. Octoer 2012 YTD, U.S. capital hasmade its iggest oreign investments in the UnitedKingdom ($5 illion USD), Russia ($2.2 illionUSD) and Poland ($911 million USD.)

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Most U.S. investmentcapital is sourceddomesticallyWhile U.S. investors source capital rom a varietyo regions, the most popular source is the UnitedStates itsel. 54.8% o investors named the U.S.as their primary source o capital. Other popularregions include Western Europe (17.8%) Asia(8.2%) and Middle East and North Arica (6.8%).

U.S. investors preer to make investments in their

own ackyard. 59% o respondents target the U.S.as their primary region o investment. Other topregional targets are Western Europe (14%) andAsia (8%). When asked aout individual countries,respondents singled out the United States (35%),United Kingdom (10%) and Canada (9%) as theirtop picks.

When asked to compare the relative attractivenesso various regions as investment targets, investorsseemed most avorale aout the United Statesand Asia.

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Few investors will makestrategy changes basedon the U.S. electionMost investors do not agree that the U.S. electionwill adversely aect investment plans.

Despite the act that most respondents willinvest primarily in the U.S., they still have strongopinions aout other markets. The survey

showed strong agreement with the opinion thatthe upcoming change in Chinese leadership willadversely inuence investment plans in Asia. Alsopopular was the elie that the eurozone crisis hasimpeded planned investment in the EU except orin sae haven locations.

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About the surveyThe 2012 Gloal Investor Sentiment Survey waslaunched on 24th Septemer 2012 and closed on5th Octoer 2012.

The survey contained a wide variety o questionsgenerated y Colliers International Research incollaoration with senior proessionals romColliers International Gloal Investment Servicesand ACA Research, an external market researchcompany.

Major institutional and private investorsrepresenting a road cross section o propertyinvestors across the gloe were invited to completethe survey. There were a total o 434 respondentsacross the US, Canada, Latin America, Australia/New Zealand, Europe, Asia and the Middle East.

The primary purpose o the survey is to etterunderstand the attitudes and outlook o propertyinvestors at a gloal and regional level over thecoming 12 months.

Authors

EMEATony Horrell

Global Investment Services,Chie Executive Ocer,UK and Ireland

AsiaAntonio Wu

Executive Director,Investment Services,Hong Kong

AsiaDennis Yeo

Managing Director,Singapore

Australia &New Zealand

James QuigleyNational Director,Capital Markets

CanadaMilton LambSenior Vice President,Investment Services

Latin America

Ricardo BetancourtPresident

United States

Warren DahlstromPresident,Investment Services



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Global ResearchersGlobal Analysis | Australia and New Zealand

Nerida Conisee, National DirectorResearch | Australia

> [email protected]> 61 3 9612 8803

Asia

Simon Lo, Executive DirectorResearch & Advisory | Asia

> [email protected]> 852 2822 0511

EMEA

Mark Charlton, Head o Research and ForecastingUK

> [email protected]> 44 20 7487 1720

USA | Latin America

James Cook, DirectorResearch | USA


Canada

Ian MacCulloch, National DirectorResearch | Canada



The inormation contained herein has eenotained rom sources deemed reliale. Whileevery reasonale eort has een made toensure its accuracy, we cannot guarantee it. Noresponsiility is assumed or any inaccuracies.Readers are encouraged to consult theirproessional advisors prior to acting on any o thematerial contained in this report.


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About Colliers International

Colliers International is a leader in gloal real estate services, dened y ourspirit o enterprise. Through a culture o service excellence and a sharedsense o initiative, we integrate the resources o real estate specialistsworldwide to accelerate the success o our partners.

When you choose to work with Colliers, you choose to work with the est. Inaddition to eing highly skilled experts in their eld, our people are passionateaout what they do. And they know we are invested in their success just asmuch as we are in our clients success.

This is evident throughout our platormrom Colliers University, ourproprietary education and proessional development platorm, to our clientengagement strategy that encourages cross-unctional service integration, toour culture o caring.

We connect through a shared set o values that shape a collaorativeenvironment throughout our organization that is unsurpassed in the industry.Thats why we attract top recruits and have one o the highest retention ratesin the industry. Colliers International has also een recognized as one o theest places to work y top usiness organizations in many o our marketsacross the gloe.

Our Services

The oundation o our service is the strength and depth o our specialists. Ourclients depend on our aility to draw on years o direct experience in the localmarket. Our proessionals know their communities and the industry insideand out. Whether you are a local rm or a gloal organization, we providecreative solutions or all your real estate needs.

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Colliers 2013 Global Investor Sentiment Report-En