UK Commercial Property Market - Current Trends & Prospects

1. UK Commercial Property Market - Current Trends & Prospects Head of UK Research, CB Richard Ellis Peter Damesick, PhD February 27, 2008 London

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3. Council Member Biography: Peter Damesick, PhD, is Head of UK Research at CB Richard Ellis, the world's largest firm of real estate advisers, focusing on commercial properties. Based in London, he leads a team of over 20 analysts covering occupational and investment activity in all sectors of the UK property market. Dr. Damesick is responsible for research support to other departments of the firm and consultancy to clients in a range of areas including market analysis, forecasting and strategy advice. He oversees CBRE's UK research publications programme and is a well-known market commentator and conference speaker. Dr. Damesick's previous experience includes management consultancy and six years as a university lecturer. He holds MA and PhD degrees from the University of Cambridge and is a Visiting Professor in the Department of Geography, Birkbeck, University of London. © 2008 Gerson Lehrman Group Inc., All Rights Reserved

4. Topics • Reversal of fortune - recent changes in asset values and investment activity • The credit squeeze and UK commercial property - impacts on investment, development, occupational demand • Outlook for the Central London office market and the retail sector • Prospects for yields and property investment returns © 2008 Gerson Lehrman Group Inc., All Rights Reserved

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8. UK Commercial Property Market:Trends and Prospects Peter DamesickHead of Research – UKCB Richard EllisFebruary 2008

9. Agenda • Credit squeeze impacts on UK commercial property • Recent trends in property performance and investment activity • Sector outlook • Central London offices • Retail • Prospects for yields and returns

10. Debt Market Dislocation • Sub-prime mortgages have contaminated debt markets • Uncertainty over values • Loss of confidence • Re-pricing of investment risk • Bank exposures to ‘damaged goods’ • Losses • Reduced capacity to lend • Blockages in the banking system - credit squeeze hitting wider economy

11. Credit Squeeze: Property Market Impacts Debt Market Dislocation Investment Market Occupier Markets Development • Supply • Demand • Rents

12. UK Pooled Property Funds: New Money Raised vs Redemptions Source : AREF

13. UK Pooled Property Funds: Net Inflows Source : AREF

14. Investment Deal Volumes Down Sharply Source: CB Richard Ellis, Property Data *2008 Figures as of February 20th

15. Average Prime Property Yields Q4 2007 Source : CB Richard Ellis Rent & Yield Monitor

16. All Property Capital and Rental Growth Index, Dec 1999=100 -13.8% Source: CB Richard Ellis Monthly Index

17. UK House Price Growth and Mortgage Approvals Jan 2008 Source : Bank of England, Nationwide

18. UK Interest Rates Source: Ecowin

19. UK Interest Rates Source: Ecowin

20. UK GDP and Consumer Spending Growth Jan 2008 Forecast Source: EcoWin, CBRE, Oxford Economic Forecasting

21. Office Market Prospects • Central London exposed to financial sector woes • Investment banks cutting jobs • More losses to come • Fewer big space requirements • New supply increasing in the City • 2008 a peak year for development completions

22. Central London Finance & Business Services Employment Q4 2007 Forecasts Source: CB Richard Ellis, Experian Business Strategies

23. End Year Vacancy Rates : Ready to Occupy Offices Source: CB Richard Ellis

24. Influences on Development • Tighter finance • Stock market valuation of REITs • More caution on demand and rental prospects • Higher yields – lower end values • Construction cost inflation

25. Central London Developments 1985 – 2010 Source: CB Richard Ellis, 15/10/2007

26. Central London Office Take-up and Availability 1998-2008 Source: CB Richard Ellis

27. City and West End: Prime Office Rental Growth Q4 2007 Forecast Source: CB Richard Ellis

28. City Offices: Prime Headline Rents 1995-2012 Q4 2007 Forecast Source: CB Richard Ellis

29. Retail Sector Outlook • Mixed performance among retailers • Sales growth weakening • Variations within sector • Central London – international demand • Destination locations vs secondary • Food retailers hurting non-food • Bulky goods retail warehouses hurting

30. Property Yields: Shopping Centres Source: CB Richard Ellis Monthly Prime Yields

31. Retail Rental Value Growth Q4 2007 Forecast Source: IPD, CB Richard Ellis

32. Property starts to look better priced Q4 2007 Source : CB Richard Ellis Rent & Yield Monitor

33. European Prime Office Yields % Source: CB Richard Ellis

34. The Surge in Overseas Investment Source: Property Data

35. Investment Market Outlook • Redemptions forcing some retail funds to sell • Less bank debt available – tighter terms • …. but interest rates to fall • Who will buy? • Opportunity funds – Value hunters • German Open-Ended Funds • Sovereign Wealth Funds • Domestic and foreign equity-backed investors

36. Property Investment Transactions ?? Source: CBRE, Property Data

37. Re-pricing to restore growth potential Jan 08 Forecast Source : IPD, CBRE

38. Total Returns Q4 2007 Forecast Source: IPD, CB Richard Ellis