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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

This time last year, the Eurozone was closing a record year for growth, and the outlook for 2018 was promising. The economic revival was, however, disturbed by U.S.-China trade tensions and a myriad of disruptions at home. A solid domestic economy has meant a decent year for growth nonetheless. Despite continuing uncertainties with regards to trade barriers and Brexit, the European economy remains solid, and we anticipate that most of its major countries should see healthy growth this year. Nevertheless, the European economy is in a late-cycle phase with moderating growth expected in 2019. The European Union faces challenges both economic and political. The ‘gilets jaunes’ protests in France, rising populism, and Brexit are likely to make headlines in 2019 as well. After three and a half years of QE and amassing over €2.5 trillion of assets, the ECB has ended its net asset purchases in December 2018. The ECB is, however, still expected to maintain its extraordinarily low interest rates and liquidity operations to safeguard the recovery in the short term.

In this first edition of the 2019 Europe Watch series we highlight the economic and real estate outlook for the Netherlands.

THE NETHERLANDS - FROM GROWTH LAGGARD TO LEADER WITHIN “CORE EUROZONE”

The earlier housing and banking sector crisis has meant that economic growth in the Netherlands trailed Germany’s following the Great Recession, but the current economic picture is more upbeat and clearly above the “Core Eurozone”. Although slightly below previous quarter’s historic highs, the Q4 Economic Sentiment Index (ESI) for the Netherlands remains at elevated levels. Higher inflation will be a drag on households’ real disposable income, but with historically-high capacity pressures this should be compensated by solid nominal wage growth. Netherlands GDP for 2018 is expected to end at a sound 2.6% (y/y). However, a moderation of growth to 1.4% in 2019 is forecasted as external demand is expected to soften and capacity constraints begin to bite.

JANUARY 2019

2,937.36

-7.4%

Euro Stoxx 50

0.00%

ECB Policy Rate

0.24%

-8 bps

10-yr. German Bond

$51.49

-12.3%

Brent Crude

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

REAL GDP GROWTH P.A. – “CORE” EUROZONE

Source: Oxford Economics

PRINCIPAL CONTRIBUTOR:
Esat Güler
CURRENT PRICE INCREASE NOT CREDIT DRIVEN, UNLIKE 2003 - 2008

Despite the commonality of steep price increases, today’s Dutch housing market differs from that of 2008. Unlike the 2003-2008 period, the current price increase is not credit driven, but stemming from a large housing shortage. Although prices in the last five years have increased significantly (>20%), mortgage debt has grown at a much lower pace (3%). The house price-to-income ratio is still below 2008 levels. However, regional differences are large. While house prices have passed pre-crisis levels (5% currently) nationwide, prices have increased much faster in the four major cities. Amsterdam housing prices are currently 45% above their previous peak. Due to high prices and tighter credit measures the rental market is the only alternative for many households. The rental market is, however, also dealing with a shortage of supply.

DUTCH MORTGAGE DEBT STOCK AND HOUSE PRICES, 1999 = 100

Source: CBS – Statistics Netherlands

RESIDENTIAL INVESTMENT ACTIVITY REMAINS STRONG

Low vacancy rates, solid income-returns, possible rent-uplift potentials and a solid economic environment are key attributes of residential as a risk-averse asset class. Accordingly, investor demand for Dutch residential is very high. Driven by the large Vesteda takeover of the NationalNederlanden portfolio for €1.5 bn. residential volumes have been pushed to a new record high during 2018 (Q1-Q3) and recorded a historic strong €4.6bn. This is 13% of the total residential investments reported in Europe (commercial) over the same period reflecting its maturity and importance in Europe. Strong investor demand, combined with low bond yields and structural shortage of rental dwellings led to downward pressure on yields, with prime residential properties currently trading at 3.15% NIY (CBRE – prime Amsterdam).

NETHERLANDS RESIDENTIAL INVESTMENTS & SHARE OF TOTAL EUROPEAN RESIDENTIAL VOLUMES

Source: CBRE Research

RAPIDLY INCREASING RENTS – POLICY MAKERS UNDER PRESSURE TO ACT

Occupier fundamentals in the Netherlands remain strong and due to structural supply constraints in major cities residential rents are rising further. In particular, the prosperous urban areas in the Randstad region benefit from strong migration, which drives the demand for housing in those areas. Sound labour markets, broad and large educational opportunities (e.g. universities), very good transport connection and an attractive “live-work-play“ environment are key pull criteria. As a result of rapidly increasing rents in the affordable housing segment, stronger regulations are now in force for new-build mid-rental apartments in Amsterdam and other major cities. Whilst this might create a substantial barrier for institutional investors in those segments, the rental outlook for the unregulated higher segment remains favourable and should attract further investment.

PRIVATE RENTED SECTOR (UNREGULATED SEGMENT)

Source: Parariush

POSITIVE RETURN OUTLOOK FOR RESIDENTIAL

As strong investor interest pushes yields for prime assets further down, the pace of decline in prime yields in the Netherlands has slowed. Over the next five years solid income returns will remain a target for most investors and are expected to be the main driver of total returns. The expected reversal in yields over the forecast period is expected to keep capital growth contribution muted for most sectors. The residential market is the exception, where strong demand from occupiers as well as from investors is predicted to result in prolonged and strong capital growth over the forecast period. While the outlook over all asset classes is moderate in a historic context, prospects for logistics and residential remain positive.

DUTCH TOTAL RETURN FORECAST, % P.A. (2019-2023)

Source: CBRE Global Investors Houseview H2 2018

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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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