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OUR COMPANY AFFILIATES

CBRE GROUP

CBRE Group, Inc. is the world’s largest commercial real estate services and investment firm, with 2017 revenues of $14.2 billion and more than 80,000 employees (excluding affiliate offices). CBRE has been included in the Fortune 500 since 2008, ranking #207 in 2018. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services.

INVESTMENT SERVICES

CBRE Global Investors, combined with CBRE Clarion Securities and CBRE Caledon, is one of the world’s leading real asset investment managers with $105 billion in assets under management.

Built up over more than 40 years, our unparalleled platform is focused on real assets, giving our institutional clients access to real estate and infrastructure in the Americas, Europe and Asia Pacific. Our clients benefit from a complete range of investment solutions including equity and debt, direct and indirect, and listed and unlisted strategies.

Trammell Crow Company, founded in Dallas, Texas in 1948, is one of the nation’s oldest and most prolific developers of, and investors in, commercial real estate.The CBRE Global Investors and Trammell Crow Company platforms make up the Real Estate Investments division of CBRE Group.

The Real Estate Investments division is led by
Danny Queenan, Global CEO, Real Estate Investments.

BLOGS

Regularly released content on the state of the real estate and infrastructure industry are produced by our subject matter experts and shared on their blogs. A selection of them can be found below.

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ASIA PACIFIC WATCH

The Australian economy has famously had the longest run of uninterrupted positive annual growth of any developed country – 27 years. Its property markets have been recording long-term average total returns which rank them very close to the highest of all countries where performance benchmarks exist. Most recently, Oxford Economics has forecasted the country to have an average annual GDP growth rate of 2.6% for the 2019-2023 period, which is broadly in line with the 10-year historic average growth rate. But notable sub-national differences have played out with Sydney and Melbourne’s broad-based, diversified economies outperforming the other cities and especially those more driven by the commodities sector. Such achievements have occurred amidst one of the more tumultuous periods of Australia’s modern political history, which has seen six prime ministers in the past decade. The Reserve Bank of Australia – normally among the most prudent Central Banks – has cut the policy rate to a record low by which to spur growth, but at some stage in the outlook it must likely follow the U.S. Federal Reserve and hike its policy rate. Our base case forecasts anticipate the RBA to start tightening in the next year or two and that by 2023, the 10-year government bond yields to be back above 4% and thus approaching a more “normal” level.

TOTAL RETURNS MODERATING BUT ABOVE AVERAGE

The latest data (June 2018) from the Australian MSCI/IPD index showed a moderating, yet still above-average performance for property. The all-property total return performance of 11.7% (unlevered, in local currency units) is equal to its 5-year LTA, and still well above its 10 and 15-year LTAs. While income returns have been fairly stable in the mid-5% to mid-7% range for all property in the past decade, capital returns have increased much more dramatically, thanks to ample local liquidity and heightened interest from offshore investors seeking good risk-adjusted returns. All major property types delivered robust, double digit total returns for the year to Q2 2018 with the notable exception of retail where returns decelerated to 8.4%. Leading the out-performance was the office sector, with a 14.7% total return.

OCTOBER 2018

24,120.2

5.5%

Nikkei 225

27,788.5

-0.4%

Hang Seng

2,821.4

3.5%

Shanghai Composite

113.70

2.4%

Yen/Dollar

Data points through end of September 2018. Change represents month-over-month change.

ANNUALIZED TOTAL RETURNS BY SECTOR

Source: MSCI/IPD

PRINCIPAL CONTRIBUTORS:
Shane Taylor
Pat Banyatpiyaphod
Juliet Cha
 
AUSTRALIA REMAINS A TARGET FOR OFFSHORE INVESTORS

Strong real estate transaction volumes have taken place in the last few years with foreign capital representing a high proportion of buyers and with capital from Asian countries particularly attracted to the Australian markets. Though investment activity slowed notably in 2016, it picked up once again last year although the first half of 2018 has seen a comparatively modest investment volume. Total property investment volume (excluding land) was just over USD 10 billion for the first half of this year and just over half of that amount was in the office sector alone. The retail sector transaction volumes were especially modest with just over USD 3 billion trading in the first half of 2018, well down from the USD 13.3 billion which traded across Australia in the full year 2015.

TRANSACTION VOLUME BY SECTOR
Sources: CBRE, RBA
OFFICE YIELDS CONTINUED TO COMPRESS IN 2018

Australia’s CBD office market yields compressed further in 2018 (in Melbourne and Brisbane) or at least held flat (in Sydney and Perth) and in all cases, were at record low levels. Yield compression in these four main CBD markets proceeded broadly in tandem since 2012 in spite of quite divergent rental growth trends. The office markets of Sydney and Melbourne continue to see their prime vacancy rates falling further below 5% and incentives coming down generating strong effective rental growth. In contrast, high vacancy rates, very high incentive levels, weaker demand and yet still additional net new supply in Perth continues to challenge its office markets. Thus office market performance in these CBDs continues to be impacted by divergent state economic performance as well as by variable supply responses.

OFFICE: PRIME YIELDS AND GOVERNMENT BOND YIELD
Note: For all property types, standing investments, unlevered and denominated in local currency. Source: MSCI – IPD
GLOBAL RETAILER ARRIVALS HELPED REPRICING

The pace of international retailer entrance and expansion has been strong in major Australian cities in recent years and this has helped spur pricing by investors seeking solid income from reputable global brand occupiers. The debate on the impact that e-commerce expansion may bring to retail assets in Australia continues and it is evident that total returns in retail have clearly decelerated and under-performed the other sectors. However concrete appraisal-based evidence at the market level showing retail yields moving up, has yet to emerge. In fact, shopping centres and high street shops in both Sydney and Melbourne continue to see record low yields and a spread to the Australian 10-year government bond yield which is still above the long-term average (for the period 2004-18).

RETAIL: PRIME YIELDS AND GOVERNMENT BOND YIELD
Sources: CBRE, RBA
INDUSTRIAL YIELDS CONVERGE

Since the end of 2016, Sydney’s prime industrial yields have been falling quite rapidly and leading national trends into record pricing territory. Due to its supply-constrained geography, coupled with strong recent rates of absorption and ongoing zoning changes in parts of the metro which aim to convert selected older, inner submarkets into higher and better uses, Sydney industrial markets have seen a surge of investor interest. In more recent quarters, Melbourne and then in turn, Brisbane, have also seen their industrial yields move lower. Improving fundamentals in those two metros have helped stoke this investor appetite as have some improvements to and announcements of, major new transportation infrastructure. Additionally, there is the structural investment theme of targeting the sector which appears to gain most from the rise of e-commerce.

INDUSTRIAL: PRIME YIELDS AND GOVERNMENT BOND YIELD
Sources: CBRE, RBA
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This information is for our clients and investors only. Please note that the content of this report is for informational purposes only and should not be viewed as investment advice or an offer or solicitation. Any opinions are solely those of the Strategy and Research Team of CBRE Global Investors and are subject to change without notice, and may not be consistent with market trends or future events. This research is based on current public information that we consider reliable, but we do not represent it as accurate, updated or complete, and it should not be relied on as such.

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