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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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EUROPE WATCH

“Brexit Day” has arrived! Or rather it has come and gone, and yet the UK (at the time of writing) remains a member of the EU. 29 March 2019, or “Brexit Day”, is the day the UK was due to exit the EU, having triggered Article 50 and begun the legal process two years earlier. That schedule has been delayed, however, and we have no more clarity on the future relationship between the UK and EU than when the process began, although political events are now moving quickly, and the UK could exit as soon as April. All outcomes are still possible: an orderly Brexit, a disorderly ‘no deal’ Brexit, or even no Brexit at all. We still believe an orderly Brexit, at some point, is the most likely outcome, although we acknowledge the chances of a more extreme outcome have increased. Since it is impossible to say with certainty which political outcome will emerge, in this month’s Europe Watch we leave politics to one side and focus on current economic and property market conditions in the UK. The UK economy has continued to grow since the referendum result in 2016, although it has not been immune to the global headwinds also affecting many other economies, and many parts of the property market have continued to perform well. Brexit has not helped the retail sector, which is also undergoing a painful period of structural change. However, occupier markets in the industrial and office sectors are still robust, and strong investor demand for alternative sectors shows no sign of abating.

LABOUR MARKET REMAINS ROBUST

Economic growth lost some momentum through the second half of 2018 in the UK, as it did across much of Europe. Uncertainty has weighed on investment and trade, but the labour market has remained a pillar of strength for the UK economy. The latest data show that the economy created almost half a million jobs over the last year, and 220,000 over the last 3 months. This was the fastest quarterly job creation since the EU referendum and pushed the unemployment rate down to just 3.9%, its lowest level since the 1970s. It has also driven an acceleration in earnings growth, which is now running at an annual rate of 3.5%, a rate of growth last seen in the UK before the GFC. These factors should be supportive of the UK economy and property markets through 2019, regardless of political events.

APRIL 2019

3,351.71

1.6%

Euro Stoxx 50

0.00%

ECB Policy Rate

-0.07%

26 bps

10-yr. German Bond

$68.39

3.8%

Brent Crude

Data points through end of March 2019. Change represents month-over-month change.

TOTAL EMPLOYMENT GROWTH & NOMINAL EARNINGS GROWTH

Source: Oxford Economics

PRINCIPAL CONTRIBUTORS:
 
David Inskip
Maria Wiklund
THE INDUSTRIAL RENT OUTLOOK DIVERGES

Of the three main sectors, industrials remain the outperformer in terms of rental growth, which is still strong geographies. Since its recent peak at the beginning of 2018, we have seen a decline in the number of markets where rents are rising, but there is still growth in the majority of locations. Rental growth has started to slow due to a supply response, and the pipeline of speculative stock has risen in the recent quarters. Occupier demand will moderate as ecommerce continues to be a positive for the sector, but manufacturers and the UK’s small businesses face headwinds. Overall, we expect rental growth to continue but with more differentiation between locations. Where supply does respond there will be a gradual realisation that ambitious rental growth expectations may not be met.

UK INDUSTRIAL LOCATIONS SEEING RENTS RISE OR FALL Y/Y, % OF ALL LOCATIONS

Source: CBRE

REGIONAL OFFICE MARKETS ON A ROLL

2018 was among the strongest years on record for office leasing activity across the UK’s regional cities. As a result, many of these markets have availability rates lower than the 20-year average. This shows that there is still demand for office space across the UK regardless of the political uncertainties, especially in markets outside of London and the South East less exposed to Brexit-specific risks. This demand is not benefitting all office property equally however, with tenants increasingly discerning and focussed on new, well specified space. Tight CBD markets with scarce development pipelines are those most likely to see further rental growth.

OFFICE AVAILABILITY RATES

Source: CBRE

RETAILERS REMAIN UNDER PRESSURE

Unfortunately, the picture does not look as good for the UK’s retail sector, where the threat from ecommerce and cyclical drags have put many retailers in financial difficulties and led to store closures. Even though Christmas trading was not as bad as some had feared and sales growth has been strong in early 2019, retailer profitability remains under pressure. Against this backdrop, retail rents will continue to fall and liquidity in the investment market will remain limited in 2019. Until recently, retail yields varied significantly depending on the quality of location but during 2018 this fear has spread across the retail sector, resulting in falling clearing prices regardless of quality and this is slowly feeding through to valuations.

UK RETAILER ADMINISTRATIONS

Source: Centre for Retail Research

INVESTMENT VOLUMES HOLDING STRONG

Despite uncertainty that Brexit has created, 2018 investment volumes in the UK were 35% above the 10-year average. The main sectors all saw a slowdown in investment volumes in 2018 compared to previous year, with retail really dragging down the All Property aggregate. There was a slowdown in industrial transactions but compared to the 10-year average the volumes were still significantly higher. The one sector recording a year-on-year increase in 2018, was the ‘Other’ sector, with a 9% year on year increase leaving investment 83% above the 10-year average. This reflects perceived structural trends benefiting certain asset types, often ‘beds’ related, and demand for secure long income streams. This is increasingly pushing investors into other non-traditional parts of the market and is yet to show signs of abating.

UK PROPERTY INVESTMENT VOLUMES, 2018

Source: Property Data

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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 & 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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