Strengthening markets trigger real estate development cycle. Global Market Perspective Q3 2014

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Strengthening markets trigger

real estate development cycle

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Global Market Perspective

Third Quarter 2014

Strengthening markets trigger real estate development cycle

An abundance of equity, new capital formation and improving debt liquidity are supporting a robust global commercial real estate investment market. With the market on track to achieve the highest transaction volumes since 2007, JLL’s forecasts for full-year 2014 have been upgraded. In the occupational markets, most indicators show steady progress across all the main commercial sectors. Shortages of high-quality space are intensifying, which is helping to boost developer confidence and trigger an uptick in new construction.

Momentum continues to build in the global real estate investment market

The second quarter of 2014 has maintained the strong momentum of recent quarters. First half 2014 investment volumes are 28% higher than a year ago, prime yields in core markets have defied expectations by compressing further, and office capital values are accelerating once again, up 8.8% over the past year. The Americas and EMEA regions continue to demonstrate the strongest volume growth. Asia Pacific has struggled to sustain the record pace of 2013, but investor interest remains robust. Given capital availability and the transactions pipeline, full-year 2014 global investment volumes are expected to hit US$700 billion, an uplift of about 20% on 2013 levels.

Direct Commercial Real Estate Investment, 2006-2014

Source: JLL, July 2014 0 100 200 300 400 500 600 700 800

Americas EMEA Asia Pacific Global

US $ billions 2006 2007 2008 2009 2010 2011 2012 2013 2014 (F) XX% Projected Change 2013-2014

10%

15%

25%

20%

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Investors targeting multiple geographies

Investors are predominantly targeting the large liquid markets; the ‘Big 7’1_{countries accounted for 77% of total}

transactions in H1, while the four ‘Super Cities’ – London, New York, Tokyo and Paris – were the destinations of 20% of all capital flows. But investors are also now aggressively targeting opportunities in smaller geographies, as well as those markets further up the risk curve. For example, Brazil, Mexico, the Benelux countries, Spain and Ireland all registered notable uplifts in activity during H1.

Office leasing market recovery is still patchy

The global office leasing markets are moving in a positive direction, although the signs are more ambiguous than in the investment market. The United States has registered the highest net absorption rate of the current cycle, and London and Paris are leading the recovery in demand in Europe; in Asia Pacific, leasing volumes have rebounded by 20% compared to 2013 levels. However, global leasing volumes in Q2 were still only 5% higher than in 2013, with corporate occupiers keeping a close eye on space usage and efficiency.

Space shortages trigger office development cycle

Shortages of quality office space in the world’s dominant office markets are intensifying. While the recent uptick in new construction marks the start of a new development cycle, it will not translate into deliverable space until late 2015 and 2016, leaving a period of 15-18 months of Grade-A supply shortages and rental uplift. Singapore is expected to show the strongest rental growth this year – however the top performers will increasingly be dominated by U.S. cities. The U.S. office market overall is expected to see rental growth at well over double the pace of inflation over the next 2-3 years.

Global Office Completions, 2000-2015

24 markets in Europe; 25 markets in Asia Pacific; 44 markets in the U.S. Asia relates to Grade A only. Source: JLL, July 2014

1

Australia, China, France, Germany, Japan, UK and the U.S. 0 5 10 15 20 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (F) 2015 (F) U.S. Europe Asia Pacific

millions sq

m

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*New York – Midtown, London – West End, Paris - CBD. Nominal rates in local currency. Source: JLL, July 2014

Retail revival, polarisation and consolidation

Retail markets in the U.S. and Europe have continued their steady recoveries despite ongoing structural shifts in the retail industry. Polarisation remains pronounced and many mid-priced retailers are being squeezed. Retailer consolidation will continue to be a trend this year and M&A activity is likely to tick upwards as retailers respond to changes in consumer demand. In Asia, international retailers are looking for growth opportunities although some caution was evident in the second quarter of 2014.

Supply chain realignment boosts warehousing sector

Supply chain realignment and massive structural changes in the retail sector are driving robust demand for functional modern warehousing across all three global regions. Rental growth and supply shortages are stimulating construction in both North America and Europe, an increasing proportion of which is being built on a speculative basis.

Hotel investment maintains momentum

Hotel investment volumes have maintained the strong levels of 2013, with activity dominated by private equity and single-asset transactions. Activity remains strong, and we now expect the full-year 2014 volumes to reach US$54.5 billion, compared to US$52 billion in 2013.

Mixed picture in residential sector

London and Dubai are leading price growth in the high-end residential sector, boosted by international demand,

although there are early signs of cooling in both markets. The U.S. apartment market has continued its growth run, with the tightest conditions apparent in the gateway cities. The Asia Pacific high-end residential sales market remains subdued due to a combination of softer economic growth and policy restrictions.

+ 10-20%

+ 5-10%

+ 0-5%

- 0-5%

- 5-10%

Dubai, London*, Tokyo

Beijing, San Francisco, New York* Boston, Mexico City

Singapore

Capital Values

Rental Values

Stockholm, Hong Kong, Seoul Paris*, Sydney, Frankfurt

Chicago, Los Angeles, Toronto, Washington DC Shanghai, Madrid, Brussels, Mumbai

Moscow

Tokyo, Boston, Chicago Madrid, New York*, Los Angeles San Francisco, Mexico City Dubai, London*

Seoul, Sydney, Beijing Frankfurt, Singapore Stockholm, Paris*, Toronto Washington DC, Shanghai, Mumbai Brussels, Hong Kong

Moscow, Sao Paulo Sao Paulo

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Global Market Perspective

Global Economy

Recovery continues, but progress remains slow

The global economy experienced an uneasy start to the year, with factors such as political disruption and poor weather undermining the healthy sentiment of the previous six months. Conditions have stabilised in the emerging world over the last quarter with currencies reversing some of their losses, but ongoing geopolitical concerns remain about Ukraine and the Middle East, as well as the risks in China.

For the developed world, statistics have been slightly disappointing and downgrades to forecasts have been the norm. The most disturbing news was a big contraction in the United States economy in Q1. This was largely caused by the unusually bad weather in the U.S. winter. The underlying strength of the economy remains and activity is set to rebound over the rest of 2014, but the poor figures have halved growth expectations for the current year at a stroke.

In Europe, recent statistics have presented a mixed picture. The UK and Germany appear the healthiest of the larger economies. By contrast, concerns about some of the other Eurozone economies linger. France has held up in terms of its GDP outlook, but prospects remain relatively weak as high unemployment and fiscal consolidation weigh heavily on demand.

GDP Projections 2014 in Major Economies – Recent Movements

Australia China France Germany India Japan UK USA

April 2014 2.9 7.2 0.7 1.8 4.6 1.3 3.0 2.9

July 2014 (Latest) 3.1 7.4 0.7 1.8 4.8 1.1 3.2 1.5

Change (bps) +20 +20 0 0 +20 -20 +20 -140

Source: Oxford Economics, July 2014

ECB cuts to avert deflation – elsewhere, tightening edges closer

Nothing highlights the polarised nature of the recovery in the Western economies more than the European Central Bank’s policy loosening in June. By its sober standards, the move was surprisingly bold, not just in cutting official rates to almost zero but also in introducing negative interest rates for deposits and other credit-boosting measures. The ECB only fell short in rejecting calls for QE. At a time when markets are highly sensitive to monetary policy speculation, the move was well received, not least because it implies that a Eurozone tightening is still several years away.

Despite the emergence from recession over the last 12 months, the Eurozone economy continues to face challenges, most notably the spectre of deflation. Inflation rates have fallen to very low levels in recent months, currently averaging around 0.5% year-on-year compared with a 2% official target. A strong euro and a weak recovery mean there is a risk that prices could soon fall in the more sluggish economies.

In the UK the picture could not be more different, with the Bank of England’s bearish statements leading markets to bring in their expectations for the first hike since the financial crisis to late 2014. The economy is strong enough to justify an early move and the UK may now lead the major economies of the developed world in raising rates. In the U.S., tapering continues apace, with liquidity injections set to be withdrawn by the autumn. Despite poor Q1 data, market forecasts for the timing of Fed hikes have moved slightly earlier to mid-2015.

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Near-term outlook weaker, though steady upturn in prospect for the medium term

World GDP output is now forecast to rise by 3% in 2014. The prediction has been revised lower this quarter largely as a consequence of the steep U.S. downgrade, and GDP growth now stands at a similar rate to last year. Even before this change, emerging markets had the most dynamic outlook, continuing the post-crisis trend. But the balance is still slowly tipping back towards the developed world, where a steady upturn is in prospect.

Asia Pacific continues to be the fastest growing region. Expansion rates remain close to 5% a year, broadly flat overall, as deceleration in China and Japan is offset by improvements elsewhere. China’s slowdown is in part a reflection of an economy that is rebalancing, and the country’s authorities will manage this to prevent too sharp a deceleration. India has seen activity disappoint over recent years and still faces many policy challenges even after the election of the first majority government in 30 years. Japan’s economy likely pulled back in Q2 after April’s sales tax hike, although some progress was seen on structural reforms, i.e. the third arrow of the “Abenomics” policy package announced in June. Further monetary loosening may be needed or Japan risks returning to a similar low-growth trajectory to that seen since the mid-1990s.

The setback to U.S. activity is likely to postpone recovery in the Americas region, but a strong rally is anticipated during 2015. The U.S. had previously led the upturn in the developed world, but the one-off Q1 contraction means that growth has been revised significantly lower this year. The underlying health of the economy is not in question, however, and a return to trend next year is forecast.

Europe remains the global laggard but, promisingly, is the only region where growth prospects have been revised upwards this quarter. The Eurozone is projected to emerge from recession this year, although growth rates will continue to trail other regions and the rest of the EU. Germany shows the most consistent expansion during 2014-2015, while

France’s recovery is slower than the sluggish European average. By contrast, fortunes for the troubled ‘fringe

economies’ have improved more than expected, with Spain and Italy forecast to return to growth.

In the rest of Europe, prospects are healthier. The UK has seen a further upward revision in forecasts and is now predicted to be the most dynamic of the larger developed economies. Growth will not be sustained at this high rate but will remain above that of its Eurozone neighbours. The Nordic recovery is slightly behind the UK yet still ahead of the Eurozone, while the improvement in CEE markets continues, with Poland performing strongly. Elsewhere in the East, the most notable change has been a further sharp downgrade for the Russian forecast.

Global Outlook - GDP Growth % pa, 2013-2015

2013 2014 2015 Global 3.0 3.0 3.7 Asia Pacific 5.2 4.9 5.1 Australia 2.4 3.1 2.8 China 7.7 7.4 6.9 India 4.7 4.8 5.1 Japan 1.5 1.1 1.1 Americas 2.1 1.6 3.0 U.S. 1.9 1.5 3.1 Europe 0.5 1.6 2.0 France 0.4 0.6 1.1 Germany 0.5 1.8 1.9 UK 1.7 3.2 2.5

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COPYRIGHT © JONES LANG LASALLE IP, INC. 2014. All Rights Reserved 8 $US Billions Q1 14 Q2 14 % change Q1 14-Q2 14 Q2 13 % change Q2 13-Q2 14 H1 2013 H1 2014 % change H1 2013-H1 2014 Americas 62 67 9% 52 30% 90 129 44% EMEA 54 59 9% 40 49% 83 113 37% Asia Pacific 23 32 38% 32 -2% 59 55 -8% TOTAL 139 158 14% 124 28% 232 297 28%

Real Estate Capital Markets

Investment Volumes

Increasing equity allocations and improved debt markets help to drive volume growth

The second quarter of 2014 has maintained the momentum seen in Q1, underpinned by increasing equity allocations and improving debt markets. The US$158 billion transacted was 14% ahead of the first quarter and means that first half 2014 volumes were 28% higher at US$297 billion. Over the last five years we have seen an improvement in

transactional activity globally, but now the markets are diverging; the Americas and EMEA continue to grow, while Asia Pacific has, so far in 2014, struggled to keep pace with 2013 activity, although a strong second half is anticipated.

Direct Commercial Real Estate Investment – Regional Volumes

Source: JLL, July 2014

Direct Commercial Real Estate Investment – Quarterly Trends, Q1 2007-Q2 2014

Source: JLL, July 2014 0 30 60 90 120 150 180 210 240 Q107 Q207 Q307 Q407 Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413 Q114 Q214

Americas EMEA Asia Pacific Rolling Four-Quarter Average

US$ billions 205 107 110 100 113 73 69 66 66 66 100 118 120 159 204 190 119 91 110 100 162 40 43 35 106 124 146 210 139 158

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$US Billions Q1 14 Q2 14 % change Q1 14-Q2 14 Q2 13 % change Q2 13-Q2 14 H1 2013 H1 2014 % change H1 2013-H1 2014 USA 55.8 56.8 2% 45.4 25% 79.4 112.7 42% UK 19.1 19.9 4% 13.5 47% 29.1 38.9 34% France 5.4 10.3 91% 5.0 106% 10.1 15.6 55% Germany 11.8 8.5 -28% 6.9 24% 15.7 20.3 30% Japan 12.2 8.4 -31% 10.2 -18% 20.8 20.6 -1% Australia 4.2 7.8 85% 7.3 7% 10.5 12.0 14% China 3.0 5.1 73% 6.0 -14% 9.6 8.1 -15% Mexico 1.5 4.2 180% 1.2 255% 1.5 5.7 279% Sweden 3.1 3.9 25% 2.7 44% 4.6 7.0 53% Brazil 0.4 3.7 816% 0.5 655% 0.8 4.1 422% South Korea 0.4 2.9 560% 2.3 26% 4.2 3.3 -20% Canada 3.8 2.8 -27% 4.9 -44% 8.0 6.5 -18% Netherlands 2.0 2.7 37% 0.9 190% 1.5 4.7 214% Singapore 1.2 2.4 100% 2.1 15% 4.1 3.6 -14% Norway 0.8 2.0 150% 2.4 -17% 7.4 2.8 -62% Hong Kong 1.0 1.9 89% 1.5 24% 4.8 2.9 -39% Spain 1.5 1.8 14% 0.8 109% 1.2 3.3 171% Belgium 0.3 1.6 449% 1.3 24% 1.7 1.9 16% Italy 1.1 1.4 22% 1.2 18% 2.0 2.5 28% Ireland 1.4 1.2 -12% 0.3 360% 0.7 2.6 262% Thailand 0.2 1.1 437% 0.4 173% 0.6 1.3 122%

United States - the main contributor to growth in H1 2014

The Americas has led the other regions in volume growth this year. Quarterly volumes of US$67 billion pushed first half transactional activity to US$129 billion, 44% above the same period in 2013. Growth in the United States has been driven by strong interest on the part of equity capital sources across the spectrum of investor types - both domestic and foreign investors. However, activity is underpinned by very liquid debt markets, as balance sheet lenders remain very competitive and have gained market share from CMBS lenders.

Central and South America pulled along by their northern neighbours

While the U.S. continues to be the main contributor to Americas growth, in the second quarter it was accompanied by

Brazil and Mexico, where large industrial and retail portfolio deals moved transactional activity to US$4 billion in each

market and ensured that both have transacted more in the first half of 2014 than they did in the whole of 2013. Canada – where first half volumes were down 18% year-on-year – is the only weak spot in the region, as investors’ contemplated sustained upward pressure on vacancy rates amid a sluggish overall economy.

Direct Commercial Real Estate Investment – Largest Markets

Asia Pacific volumes remain below 2013 pace

Second quarter volumes of US$32 billion in Asia Pacific were 38% up on Q1, but a weak start to 2014 continues to hold the region back with first half volumes 8% behind the record pace set in 2013. Japan continues to be the favoured country for investors with volumes roughly in-line with last year. Q2 2014 activity was down on last year, but this was primarily due to a slowdown in IPO activity and a smaller pipeline of deals following a very active first quarter. The investment climate remains highly active with a huge pipeline of large deals and a growing wave of investors seeking exposure to Japan’s improving occupier markets. The fortunes of Australia and China continue to diverge with volumes in Australia boosted by a large REIT privatisation this quarter, while Chinese volumes for H1 2014 are 15% below 2013

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COPYRIGHT © JONES LANG LASALLE IP, INC. 2014. All Rights Reserved 10 0 5 10 15 Hong Kong Seoul Silicon Valley Stockholm Melbourne Philadelphia Toronto Dallas Shanghai Singapore Chicago Boston San Francisco Sydney Washington DC Los Angeles Paris Tokyo New York London

Americas

EMEA

Asia Pacific

US$ billions

as the market struggles to find direction, which in turn is causing uncertainty and investor hesitation in many of the smaller markets across the Asia Pacific region.

Broadening demand sees big and small markets moving in unison across Europe

Investor activity in Europe continues to follow the theme highlighted at the end of last year, with investors looking across multiple geographies and sectors for opportunities along the risk curve. This trend is reflected in improved transactional activity with the US$59 billion recorded this quarter almost 50% above Q2 2013. Evidence of this broadening trend is shown by volumes in the Benelux countries, Central and Eastern Europe, and Southern Europe all registering at least 50% more transactions by value than the first half of 2013. This - combined with the ‘Big 3' markets of the UK, France and Germany growing by 38% over the first half of 2014 - is maintaining buoyant investor sentiment, with the market witnessing more large single-asset and cross-continental portfolio deals.

‘Super Cities’ lead volumes growth

While investors are widening their search into smaller geographies, the four ‘Super Cities’ – London, New York, Tokyo and Paris – have continued to account for 20% of total global investment volumes (in H1 2014). The 20 most active markets are dominated by the gateway North American cities. Australian cities, notably Sydney, have also been moving steadily up the ranking.

Direct Commercial Real Estate Investment – Volumes in Top 20 Cities, H1 2014

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JLL increases 2014 forecast to US$700 billion as transactional activity broadens

Given the significant growth in transaction volumes recorded in the Americas and Europe in particular, as well as a large transaction pipeline, JLL has raised its full-year 2014 forecasts to US$700 billion from US$650 billion. At the global level, volumes are currently running 28% ahead of the 2013 pace; a full-year outcome of US$700 billion would represent a 19% increase on 2013 volumes of US$588 billion. Much is dependent on the final quarter when 30%-35% of all transactions for the year take place, but given the level of activity and deals in the pipeline, an upward revision is justified.

Strongest uplift expected in the U.S.

As we move further along the cycle, the U.S. is expected to attract greater investment activity across a larger number of geographies, sectors and asset classes. Both local and overseas investors are taking note of the improving

occupational markets and are increasingly trading in both primary and secondary cities. With the added support of a highly favourable lending environment, we are projecting full-year 2014 volumes in the Americas to be up 25% on 2013 levels. In Europe, investment volumes are expected to be 15% higher (in US$ terms), while a strong second half of the year in Asia Pacific could push volumes in this region to another record high.

Direct Commercial Real Estate Investment, 2006-2014

Source: JLL, July 2014 0 100 200 300 400 500 600 700 800

Americas EMEA Asia Pacific Global

US $ billions 2006 2007 2008 2009 2010 2011 2012 2013 2014 (F) XX% Projected Change 2013-2014

10%

15%

25%

20%

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Capital Values and Yields

The weight of demand continues to compress prime yields across the world’s major office markets

Core yields have defied expectations and continued to compress, often to new lows:

x Robust investor demand has pushed down yields during Q2 in several U.S. cities – notably Chicago (-20 bps),

Boston (-20 bps), New York (-10 bps) and Los Angeles (-10 bps).

x Prime yields were stable in Q2 in the dominant European investment locations such as London, Paris,

Stockholm and the German ‘Big 5’ cities, but have continued to move in elsewhere in the region, notably in Brussels (-5 bps) and recovering markets such as Madrid (-25 bps).

x The yield trend is, in general, flat in most Asia Pacific markets, although yields have compressed in Tokyo (-10 bps) and Sydney (-25 bps) on the back of very strong investor demand.

7% capital appreciation predicted for 2014

Capital values on prime assets across 25 major markets accelerated to 8.8% year-on-year in Q2, the strongest for two years. Expectations for full-year 2014 have been upgraded to 7%, with Tokyo projected to show the highest growth at close to 20%. Large increases are also expected for the U.S. gateway cities, as well as Madrid and Mexico City. By contrast, Moscow and Sao Paulo are likely to see further falls in office capital values during 2014.

Prime Offices – Annualised Capital Value Change, 25 Major Office Locations, Q1 2010-Q2 2014

Unweighted average of 25 major office markets across the globe Source: JLL, July 2014 0 5 10 15 20 25 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 % pa 23.3% 12.7% 3.2% 8.8% 7.4%

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Prime Office Yield Trends, Q2 2013-Q2 2014

*Across 25 major office markets. Source: JLL, July 2014

Prime Offices – Capital Value Clock, Q2 2013 v Q2 2014

Based on notional capital values for Grade A space in CBD or equivalent. U.S. positions relate to the overall market. Source: JLL, July 2014 -100 -50 0 50 Tokyo Sydney Singapore Shanghai Seoul Mumbai Hong Kong Beijing Mexico City Sao Paulo Washington DC Toronto San Francisco New York Los Angeles Chicago Boston Stockholm Paris Moscow Madrid London Frankfurt Brussels Q1 2014 - Q2 2014

Q2 2013 - Q1 2014 Basis point change

Americas Europe Asia Pacific Capital Value growth slowing Capital Value growth accelerating Capital Values bottoming out Capital Values falling

Americas EMEA Asia Pacific

Q2 2014

Capital Value growth slowing Capital Value growth accelerating Capital Values bottoming out Capital Values falling

Q2 2013

Boston, Chicago San Francisco, Houston, Berlin

Washington DC, Amsterdam Toronto

Sao Paulo, Paris

Mexico City, Frankfurt

Dallas, Singapore New York, Los Angeles, Stockholm

Beijing Shanghai Mumbai Seoul, Tokyo Sydney Milan Madrid Brussels London Moscow ` Hong Kong Hong Kong Sydney, Singapore Shanghai London Seoul Tokyo Mumbai, Beijing Amsterdam Paris Madrid Milan Brussels Stockholm San Francisco Houston,Frankfurt Berlin

Toronto, Mexico City

Moscow

Washington DC

Dallas Boston, Chicago New York, Los Angeles

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Prime Offices – Capital Value Change, Q2 2013-Q2 2014

Notional capital values based on rents and yields for Grade A space in CBD or equivalent. In local currency. Source: JLL, July 2014

Prime Offices – Rental Value Change, Q2 2013-Q2 2014

Based on rents for Grade A space in CBD or equivalent. In local currency. Source: JLL, July 2014 -10 -5 0 5 10 15 20 25 30 Moscow Sao Paulo Beijing Mumbai Hong Kong Brussels Toronto Singapore Seoul Frankfurt Shanghai Washington DC Mexico City Paris Sydney Los Angeles Tokyo London Stockholm Chicago New York Madrid Boston Dubai San Francisco % change

Americas

EMEA

Asia Pacific

-15 -10 -5 0 5 10 15 20 Sao Paulo Moscow Paris Seoul Washington DC Brussels Mumbai Beijing Hong Kong Madrid Sydney Stockholm Frankfurt New York Shanghai Chicago Toronto Los Angeles Tokyo Boston London Dubai San Francisco Mexico City Singapore % change Americas EMEA Asia Pacific

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Corporate Occupiers

Occupational activity increasing steadily

Activity continues to edge upwards in occupational markets across the globe. Despite signs of a slight softening in corporate sentiment in response to recent geopolitical instability, take up of space has improved fractionally in key markets across Asia Pacific, the Americas and EMEA.

Workplace as a driver of productivity and talent retention

While cost and space efficiency remain important drivers of corporate real estate strategies across sectors and markets, signs of a subtle change are appearing. There is growing evidence of corporate occupiers using the workplace as a tool to attract and retain talent and drive greater productivity from human capital as well as physical real estate. In the U.S. there are indications of a plateau in the space density trend, and across international markets the emergence of the ‘Millenials’ is beginning to impact upon workplace design and portfolio location. While workplace innovation is high on the agenda, many occupiers are also exploring structural savings through lower-cost offshore and nearshore hubs, with some looking to raise capital from asset sales in rising investment markets.

Technology sector boosts leasing activity in key markets

Financial services occupiers are demonstrating greater activity in some markets such as London, although major international banks remain focused on portfolio consolidation and driving better workplace productivity. Demand from the technology sector continues to grow, propelling leasing activity in major markets including Silicon Valley, San

Francisco and several across Asia Pacific. Life Sciences occupiers have also been particularly active in the midst of a

substantial number of mergers and acquisitions within the sector and their associated portfolio churn. Strong growth in U.S. net absorption

In the U.S. a brightening employment picture has driven a 6.2% jump in leasing activity over the first quarter, with large transactions returning to the markets and helping to fuel a 63% year-on-year leap in net absorption. For many office occupiers in the U.S., rental increases are now having an impact across portfolios, with industrial assets also facing rising costs amid strong demand and portfolio realignment.

Asia Pacific improving, but remains patchy

Sentiment is improving across the board in Asia, with demand for space increasing on average in most markets. Yet the depth of demand remains patchy with activity unevenly spread and varying by city, submarket and asset type.

Singapore, Tokyo and Seoul are seeing strong levels of activity and rising rents are posing challenges for

cost-conscious occupiers. Manila also stands out as a market in demand from international corporates, with a growing number of BPO entrants to the Philippines. Demand in Australia remains weak having recorded negative net absorption across all CBDs in five out of the past six quarters.

Paris and London bolster growth in Europe

Europe continues to see variation between markets but occupiers are showing an increasing willingness to transact across the region. Paris has witnessed large deals return to the market, recording a 25% quarterly rise in leasing transactions. London has maintained its strong momentum, while Germany is still experiencing broad-based demand for space. However, Moscow has seen more subdued activity as a result of growth downgrades and the continuing geopolitical tensions over Ukraine. Once again the impact of such tensions remains the biggest risk factor to sentiment, investment and growth in the occupational market.

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Global Office Market Conditions Matrix*, 2014-2016

* Relates to conditions in the overall office market of a city. Conditions for prime CBD space may differ from the above. Source: JLL, July 2014

Market MARKET

Chicago Brussels Beijing

Los Angeles Frankfurt Hong Kong New York London West End Mumbai San Francisco Madrid Shanghai

(Pudong)

Toronto Moscow Singapore

Washington DC Paris Sydney Mexico City Stockholm

Sao Paulo Dubai

2014 2015 2016 Neutral Market Landlord Favourable Market 2014 2015 2016 Market 2014 2015 2016 Tenant Favourable Tokyo

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Global Real Estate Health Monitor

Economy Real Estate Investment Markets Real Estate Occupier Markets

National GDP OECD Leading Indicator City Investment Volumes Capital Value Change Prime

Yield Yield Gap

Rental Change Net Absorption Vacancy Rate Supply Pipeline Dubai 4.6% na 567% 23.1% 7.3% na 8.1% na 25.0% 17.3% Frankfurt 1.8% -0.12 -12% 4.0% 4.7% 345 2.9% 0.7% 11.4% 3.5% Hong Kong 2.7% na -51% 0.6% 2.9% 84 0.4% -0.4% 4.4% 3.8% London 3.2% 0.06 54% 14.9% 3.8% 108 7.7% 1.6% 5.5% 4.6% Moscow 0.2% 0.07 -54% -7.0% 9.0% 67 -4.3% 5.6% 14.8% 13.8% Mumbai 4.5% 0.11 -76% 0.4% 10.1% 136 0.0% 7.5% 21.9% 18.3% New York 1.5% 0.08 28% 19.2% 4.0% 149 3.6% 2.0% 10.6% 1.2% Paris 0.6% 0.01 23% 8.8% 4.0% 230 -3.3% -0.7% 7.5% 3.9% Sao Paulo 1.0% -0.07 617% -6.1% 8.5% na -11.3% 4.0% 20.5% 27.7% Shanghai 7.4% 0.14 51% 4.2% 5.9% 183 3.7% 11.2% 11.9% 30.3% Singapore 3.6% na 24% 2.1% 3.9% 160 15.9% 2.4% 5.8% 4.4% Sydney 3.1% -0.12 62% 10.9% 6.4% 282 1.9% 1.3% 10.5% 3.0% Tokyo 1.1% -0.26 35% 14.4% 3.5% 293 5.4% 5.4% 3.7% 8.0%

Real estate data as at end Q2 2014

Definitions and Sources

National GDP: Change in Real GDP. National Projection, 2014. Source: Oxford Economics

OECD Leading Indicator: Composite Leading Indicator. Change in Index. Latest Month. Source: OECD

City Investment Volumes: Direct Commercial Real Estate Volumes. Metro Area Data. Rolling Annual Change. Source: JLL Capital Value Change: Notional Prime Office Capital Values. Year-on-Year Change. Latest Quarter. Source: JLL Prime Yield: Indicative Yield on Prime/Grade A Offices. Latest Quarter. Source: JLL

Yield Gap: Basis Points that Prime Office Yields are above or below 10-year Government Bond Yields. Latest Quarter. Source: JLL, Datastream Rental Change: Prime Office Rents. Year-on-Year Change. Latest Quarter. Source: JLL

Net Absorption: Annual Net Absorption as % of Occupied Office Stock. Rolling Annual. Source: JLL Vacancy Rate: Metro Area Office Vacancy Rate. Latest Quarter. Source: JLL

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Office Markets

Office Demand Dynamics

Continued signs of improvement, but leasing activity still uneven

The second quarter has seen further signs of improvement in the office leasing markets, although activity has remained patchy. Global office leasing volumes in Q2 were up 5% year-on-year to reach their highest level for two and a half years. The strongest recovery has been recorded in Asia Pacific where volumes are 20% higher than a year ago. Europe is up 11% year-on-year, with its two largest markets – London and Paris - performing robustly. Gross leasing activity in the U.S. continued to be weaker than expected in Q2, but this belies strengthening market fundamentals and higher net absorption.

While leasing volumes are steadily recovering and occupier sentiment is notably improved, we have not yet seen a substantial breakthrough in demand levels, and full-year 2014 volumes are unlikely to be more than 5% higher than in 2013. However, stronger economic growth, improving business performance and elevated M&A activity all point to a healthier leasing market in 2015.

Office Leasing Volumes, 2013 v 2014

Flat gross leasing trend in United States belies robust market fundamentals

H1 2014 leasing volumes in the United States were below expectations, down about 3% from H1 2013. However, this in part may reflect harsh early-year weather and related economic stumble, and is inconsistent with other fundamentals’ trends such as net absorption, which is at its highest level of the current recovery. Momentum is building and overall leasing activity in Q2 increased by 6.2% on the first quarter; moreover, large-space leasing deals have returned after a two-quarter lull. We expect further strengthening of leasing activity in the second half of the year to the point where the full-year volume is likely to be slightly higher than 2013.

Europe

Asia Pacific

U.S.

Global

FY 2013

FY 2014

+6%

0-5%

-11%

~ 5%

-5%

15-20%

+1%

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Asia Pacific gross leasing volumes up 20% year-on-year

Sentiment among Asia Pacific corporates continues to improve compared to 2013. Gross leasing volumes in the region have risen by 20% year-on-year, largely as a result of relocations and pre-commitments to future projects. However, the increase in gross leasing activity has been uneven:

x Tokyo and Seoul have seen strengthening pre-leasing activity.

x Southeast Asia remains very active, especially the Philippines, where companies are moving beyond call-centre activities.

x Demand in China has been dominated by domestic firms and select MNCs (such as international retailers). x Recent political activity in Thailand, India and Indonesia has given some companies pause for thought. x Leasing market conditions in Australia have remained segmented, with technology and financial services

becoming more active, while the commodity and public sectors are still weak.

x The technology sector is expanding across the Asia Pacific region. The newer players – LinkedIn, Twitter, Google – are all taking space, and in many cases backfilling the space left by the financial sector.

We expect full-year Asia Pacific net absorption and gross leasing activity to grow by 15%-20% this year as corporate confidence strengthens.

European office leasing activity shows encouraging signs

European office leasing volumes in Q2 grew by 18% on Q1 2014 and were 11% up on Q2 last year:

x In Paris, leasing activity has increased by 25%, making it the city’s best second quarter since 2007. x London has maintained its strong momentum with gross leasing rising 11%.

x Activity in Germany remains healthy and Stockholm had a record quarter, while activity also increased notably in Brussels and Milan.

x Quarterly performance in the CEE was driven by robust activity in Budapest and Warsaw, but volumes in

Moscow and Prague continued to be subdued.

Stronger economic activity and employment growth are expected to fuel expansionary demand in Europe. In the short term, however, unemployment will remain high and occupiers are likely to remain cost-conscious. The preference for modern space to drive productivity and efficiency remains, and a lack of such space in some markets has constrained activity. The high volumes of pre-leasing for space completing this year (and into next year) demonstrates the willingness of occupiers to commit to modern space. Gross leasing volumes are forecast to increase by around 5% in 2014 and by another 5% in 2015.

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Global Office Demand – Net Absorption Trends, 2004-2014

-5 0 5 10 15 20 25 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 millions sq m Projection

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Office Supply Trends

New construction continues to rise

The uptick in new construction has continued into the second quarter of 2014 as developer confidence builds. Globally, office completions for 2015 are likely to be 25% higher than 2014, although levels are still only just above the historic norm.

Construction up 38% in the United States

Construction volumes in the U.S. are up by more than one-third on year-end 2013, led by a handful of locations, most notably Houston. High construction-to-inventory ratios are also features of Silicon Valley, Austin and San Francisco. Pre-leasing levels are high at about 50%-70%.

Canada is seeing a burgeoning supply pipeline. In its four primary office markets – Toronto, Montreal, Calgary and

Vancouver – 25 projects topping 1.3 million square metres will be added to the CBD inventory over the next four years.

Supply wave posing challenges to Latin American office markets

A majority of Latin America’s largest office markets continue to experience large volumes of new office deliveries, especially Mexico City, Sao Paulo and Bogota. Mexico City is notable for its continuing ability to counter this supply cycle with consistently impressive absorption; by contrast, levels of absorption in Sao Paulo and to a lesser extent Bogota are not keeping pace with new construction.

A temporary lull in new deliveries in Asia Pacific

During Q2 2014, Grade-A regional stock additions were down 48% year-on-year, with around half of the total in India. Full-year 2014 deliveries across Asia Pacific are likely to be at their lowest since 2006, although 2015 is forecast to see a sharp 38% uplift in completions.

Construction rising in Europe

Office completions in Europe continued to increase in Q2, up by 76% on Q2 2013. As a result, H1 2014 levels are now almost double those of H1 2013. Completion volumes were high in Moscow and London, delivering over 500,000 square metres combined. Warsaw has also continued to see high new supply volumes.

Full-year 2014 completions in Europe, at close to 5 million square metres, will be 20% higher than 2013 and in line with the 10-year average. A further 5 million square metres is projected to be delivered in 2015.

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Global Office Completions, 2000 - 2015

Office Supply Pipeline – Major Markets, 2014 - 2015

Covers all office submarkets in each city. Tokyo – CBD - 5 kus Source: JLL, July 2014 0 5 10 15 20 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (F) 2015 (F) U.S. Europe Asia Pacific

millions sq m Average 0 5 10 15 20 25 30 Chicago Los Angeles New York Madrid Washington DC Brussels Boston Stockholm Toronto Sydney Seoul Frankfurt Hong Kong Paris San Francisco Singapore London Beijing Tokyo Moscow Dubai Mumbai Mexico City Sao Paulo Shanghai

Completions as % of existing stock

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High structural vacancy rates persist

The global office vacancy rate (across 98 markets) has once again remained within the 13%-13.5% range at 13.1% in Q2 2014. Rates are now unlikely to fall below the 13% threshold before the end of the year.

U.S. Vacancy: Vacancy is falling fast in the United States which, at 16.3%, is down by 70 basis points from last year. Tenants are facing tight market conditions in urban Grade- A space environments; suburban markets are recovering more slowly. The lowest vacancy is in New York, San Francisco and Portland at around 10.5%; the highest is in

Detroit at 26%.

Asia Pacific Vacancy: At 11.5%, the regional vacancy has fallen to its lowest level in more than a year. Most major markets, including CBD Tokyo, Beijing, Hong Kong and Singapore are registering single-digit vacancy rates. The notable exceptions include the Shanghai decentralised market and most cities in India and Australia.

Europe Vacancy: The European office vacancy rate has remained unchanged at 9.7% for six consecutive quarters, and is unlikely to move more than 10 basis points during the remainder of the year. London maintains Europe’s lowest vacancy rate at 5.5%.

Office Vacancy Rates in Major Markets, Q2 2014

Regional vacancy rates based on 49 markets in the Americas, 24 markets in Europe and 24 markets in Asia Pacific.

Covers all office submarkets in each city. All grades except Asia and Latin America (Grade A only). Tokyo relates to CBD – 5 kus. Source: JLL, July 2014 0 5 10 15 20 25 T or ont o Ne w Y or k S an F ra nc is co Me xi co C ity Los A ngeles W as hingt on D C C hic ago Bo st on S ao P aolo London Pa ris S toc kholm B ru sse ls Fra nk fu rt M adr id Mo sco w T okyo C B D B eijing H ong K ong S ingapor e S eoul S ydney S hanghai Mu mb ai

Europe 9.7% Asia Pacific 11.5% Americas 15.5% % Quarterly movement Increased Decreased Stable Global 13.1%

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Office Rental Trends

Steady office rental growth

Rental growth has continued in all three global regions. Asking rents in the U.S. have grown by 2.5% year-on-year, which is slower than in previous quarters, and has mainly been constrained by limited high-quality space options. Net effective rental growth in Asia Pacific increased by 0.9% over the second quarter (similar to Q1), while annual rental change on prime assets in Europe has edged up to 1%.

San Francisco (+5.3%), Singapore (+4.6%) and Boston (+2.6%) have shown the strongest uplifts during Q2.

Meanwhile, Washington DC and Sao Paulo continue to register declines.

Momentum to build in H2 2014

Rents on prime assets across 25 major markets are currently growing at close to 3% per year, and are expected to accelerate above 4% by end-2014.

Singapore is predicted to top the rental growth league table in 2014, followed by Dubai, London and Tokyo. The

5%-10% growth range is also likely to include several U.S. cities – New York, San Francisco and Boston – as well as

Mexico City and Beijing.

Prime Offices – Rental Change, 2010-2014

Prime office rental growth: unweighted average of 25 major markets. Source: JLL, April 2014

Forecasts signal higher rents in the United States

Around two-thirds of U.S. markets tracked by JLL reported increases in asking rents in Q2, far higher than in previous quarters. In most markets, increases were marginal, although supply-constrained and tech-heavy markets like San

Francisco, Silicon Valley and Portland are registering stronger growth. Double-digit rental growth is being recorded in

several niche submarkets – for example, San Francisco’s South Financial District, New York’s creative hub in Chelsea and Houston’s Energy Corridor.

0 1 2 3 4 5 6 7 8 9 10 2010 2011 2012 2013 2014

8.6%

7.6%

2.2%

1.5%

Rental change (y -o-y % )

4.2%

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A gap of another 15-18 months until the next cycle of development delivery in late 2015 will yield continued market tightening and consistent rental growth exceeding 5% around the U.S. in 2015.

Steady rental growth in Europe

Prime office rents have continued to increase in Europe, though the pace has been slightly slower than at the beginning of the year. The European Office Index rose by 0.4%, compared with 1.1% in Q1 2014. Of the 24 Index markets, three have seen quarterly rental increases, with Dublin (+7.1%) again leading; Munich rents (+3.2%) have climbed to their highest levels since the early 1990s. Positive news also came from Spain, where Madrid (+1%) has witnessed its first increase since Q3 2008.

Europe’s prime rents are forecast to continue to rise, given the low levels of high-quality space. From 2015, expansionary demand should support further rental growth, with the strongest uplifts projected for London and the

Nordics. Rents in Southern Europe, notably Madrid, will also maintain their recovery. The preference for quality space

in good locations will create a performance gap between Grade A offices and the rest. Asia Pacific net effective rents edge up

Net effective rents increased in over half of Asia Pacific markets in Q2 2014, with average quarterly growth of 0.9% (similar to Q1). Singapore (+4.6%) continued to see the strongest quarterly uplift while growth improved in Beijing (+2.5%), with vacancy edging lower in both markets. Quarterly growth remained steady in Tokyo (+2%), and small rental increases were seen in Hong Kong and Shanghai. Rents in Jakarta fell for the first time since Q3 2009 with business expansion put on hold due to recent elections. Effective rents have held steady in Sydney and Melbourne, but have decreased in other Australian cities due to limited demand.

Prime Offices – Rental Clock, Q2 2013 v Q2 2014

Based on rents for Grade A space in CBD or equivalent. U.S. positions relate to the overall market

Source: JLL, July 2014 Rental Value growth slowing Rental Value growth accelerating Rental Values bottoming out Rental Values falling

Q2 2014

Rental Value growth slowing Rental Value growth accelerating Rental Values bottoming out Rental Values falling

Q2 2013

Chicago Hong Kong Singapore Brussels Dallas, Frankfurt Houston San Francisco Toronto

Los Angeles, Seoul, Shanghai Tokyo Washington DC Mexico City Sao Paulo Paris Mumbai, Boston Sydney Beijing Johannesburg Milan Madrid New York Istanbul, Dubai London Berlin, Moscow Stockholm Amsterdam Shanghai

New York, Stockholm Tokyo

Singapore

Los Angeles, BostonMumbai

Washington DC Madrid, Milan Paris, Brussels Hong Kong Sydney Seoul Chicago, Dubai Istanbul, Beijing London Frankfurt Berlin Moscow Amsterdam Dallas Houston San Francisco Johannesburg Toronto Sao Paulo Mexico City

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Retail Markets

Revival, polarisation and consolidation

Retail markets in the U.S. and Europe are continuing their steady recoveries despite ongoing structural shifts in the retail industry. Polarisation remains pronounced and many mid-priced retailers are being squeezed. Retailer consolidation will continue to be a trend this year with M&A activity likely to tick upwards as retailers respond to changes in consumer demand. In Asia, international retailers are looking for growth opportunities although some caution was evident in the second quarter.

U.S. market progresses despite structural challenges

The U.S. retail market has maintained its gradual revival, with the overall vacancy rate decreasing 10 basis points during the quarter to 6.4%. Net absorption was more than double new deliveries and rents inched up 1.2% in Q2. One significant and positive for the market is that new supply remains at historically very low levels, and the little supply that is under way now consists mainly of big-box single-tenant stores, in large part already leased to anchor discounters. Growing interest in Europe’s recovery markets

Similarly, retail rents in Europe rose by 1.2% in Q2, despite persistently high unemployment and an overhang of household debt. The strongest rental growth was recorded in Athens (+15%), Madrid (+10%), Barcelona (+6.6%) and

Milan (+4.3%), emphasising returning retailer interest in Europe’s recovering markets. Likewise, Oslo (+10%) and Istanbul (+6.7%) performed well.

A rise in new shopping centre deliveries in Europe

14.1 million square metres of new shopping centre space will be completed across Europe during 2014 and 2015 – highlighting continued activity in shopping centre development in the region. However, the majority of the new schemes are being built in Russia and Turkey as they play catch up with others across the region. Russia will have the largest shopping centre stock in Europe by 2015. In Western Europe, more favourable market conditions will not necessarily translate into a wave of new retail development as per previous periods of economic recovery. Structural change is still playing out, retail is being redefined and developers will be cautious, as will lenders on new developments.

Mixed retailer demand in Asia Pacific

China continues to witness healthy demand supported by fast-fashion retailers and F&B operators, but with slow

expansion by luxury brands. In Hong Kong, demand has remained strong in core areas. Elsewhere in Asia Pacific, retailers have been generally more discerning about expansion across Southeast Asia, with the notable exception of

Manila, while demand in India has been limited by a lack of quality mall space and ongoing regulatory challenges for

foreign retailers. Leasing activity in Australia is stable, although more active for international fashion brands. World’s largest mall announced in Dubai

One of the most eye-catching announcements over the past quarter has been that of the ‘Mall of the World’ in Dubai – a new 750,000 square metre development by Dubai Properties Group. The ‘Mall of the World’ forms the centrepiece of a larger project covering 4.5 square kilometres; a large part of this site will be encased by a massive dome that can be opened during the winter months.

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Prime Retail – Rental Clock, Q2 2014

Prime Industrial – Rental Clock, Q2 2014

Relates to prime space. U.S. positions relate to the overall market Source: JLL, July 2014 Rental Value growth slowing Rental Values falling Rental Values bottoming out Warsaw

Americas EMEA Asia Pacific Rental Value

growth accelerating

Amsterdam, Paris, Madrid

Atlanta, Houston Chicago, New York, San Francisco

Frankfurt

Tokyo, Philadelphia

London

Beijing, Hong Kong

Dallas, Shanghai Singapore Boston Los Angeles Sydney Rental Value growth slowing Rental Values falling Rental Value growth accelerating Rental Values bottoming out

Shanghai

Chicago

Dubai, Mumbai, San Francisco, Houston

Delhi Paris,Hong Kong, Singapore

London

Miami

Madrid, Milan, Los Angeles Sydney

Moscow

Berlin, Beijing

New York, Boston, Washington DC

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Industrial Warehousing Markets

Supply chain realignment boosts warehousing demand

Supply chain realignment and massive structural changes in the retail sector are driving strong demand for functional modern warehousing across all three global regions. Rental growth and supply shortages are stimulating construction in both North America and Europe, an increasing proportion of which is being built on a speculative basis.

U.S. vacancy dips below previous cycle’s low

The U.S. industrial market vacancy rate, at 7.4%, has fallen below the low of the last cycle. Tenant requirements are robust and with construction playing catch-up (after 2010-2012 marked a 60-year delivery-low), vacancy will continue to decline through year-end. Landlords are increasingly gaining leverage in all of the 50 U.S. markets tracked by JLL. Construction activity is up 67% from one year ago, with more than half being built on a speculative basis. The Inland

Empire (Southern California), Dallas/Fort Worth (Texas) and Philadelphia (Pennsylvania) are the U.S.’s most active

development markets.

Shortage of modern space drives occupiers to U.S. secondary markets

Major U.S. logistics hubs - such as Los Angeles, Chicago and New Jersey - have few Grade-A and quality B-space units available. As a solution, larger occupiers are now exploring secondary markets which have a reasonable drive time to major population centres, land ready for development, a competitive labour force, a robust supporting infrastructure and economic incentives.

Industrial strength in Canada and Mexico

Demand for logistics and warehouse space remains healthy in Canada’s key markets of Montreal, Toronto, Calgary,

Edmonton and Vancouver. The markets’ vigour is felt in rising construction and accelerating rental growth, up 1.5% in

Q2. Going forward, support for industrial occupancy and rental pricing will be found in an anticipated acceleration in export activity. In Mexico, the Bajio and Central industrial regions are particularly strong at present, with the Central Region experiencing some of its tightest market conditions in memory. The tremendous strength in fundamentals is also creating a vibrant investment market for industrial assets in Mexico.

Occupational demand maintains strong momentum in Europe

Changing space requirements continue to drive buoyant demand across Europe, and ongoing supply chain alignment will keep occupational demand at high levels and drive up rents. A shortage of available supply means that take-up will remain volatile across the region, particularly due to the time it can take to agree terms on new build-to-suit facilities. Speculative development has risen in recent months, mainly driven by robust activity in Russia. Elsewhere, it is limited to select initiatives, mostly within the core markets of the UK, Germany and France.

Asia Pacific warehousing demand driven by the retail sector, but demand strengthens from exporters

E-commerce and logistics companies continue to underpin leasing activity in Asia, but demand has also picked up from exporters and manufacturers (in Shanghai and Singapore, for example). Moderate rental growth has been seen in Greater China, with the largest increases evident in Hong Kong.

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Hotel Markets

Hotel investment activity remains buoyant in H1 2014

Global hotel investment volumes totalled US$25.2 billion in the first half of 2014, representing an increase of 6.5% on H1 2013. Activity remains strong, and we now expect the full-year 2014 volumes to reach US$54.5 billion, compared to US$52 billion in 2013.

The Americas region continued to be at the forefront of activity in terms of overall volumes, with an 11.5% uptick. After a brief respite in the first quarter, EMEA is back on track with a 3.8% increase in volumes in H1 2014 year-on-year. Asia Pacific registered a small 3.7% decrease during the same period. The global market is currently dominated by private equity – both as buyers and sellers.

Hotel Investment Transactions, H1 2013 v H1 2014

US$ Billions H1 2013 H1 2014 H1 2013 to H1 2014 % Americas 11.9 13.2 11.5% EMEA 8.1 8.4 3.8% Asia Pacific 3.7 3.6 -3.7% Total 23.7 25.2 6.5% Source: JLL, July 2014

Private equity continues to dominate in the Americas

The abundance of equity and strong debt markets, as well as rising revenue per available room (RevPAR), continues to drive liquidity and keep investors and lenders bullish in the Americas.

In terms of buyers, private equity still leads the pack, accounting for 40% of transactions so far this year, which is consistent with H1 2013. While private equity funds are pursuing product across the spectrum, their primary targets include large select service portfolios, resorts and ‘big ticket’ full-service hotels.

REITs’ market share is increasing; the sector accounted for 25% of all transactions completed in H1 2014. REITs are targeting high-quality, branded assets in primary markets. Hotel operators also continue to make selective acquisitions but their market share is falling – they represented 13% of total volumes. On the sell-side, private equity (45%) and hotel operators (22%) were most active.

Single-asset transactions now drive the market

An emerging trend in the U.S. is that high-quality single-asset transactions are now dominating market activity, making up three-quarters of transaction volumes. The average size of single-asset trades in H1 2014 is up 22% year-on-year, driven by transactions on both coasts. Continued RevPAR increases and compressing yields are resulting in capital value appreciation. This year marks the fifth consecutive year of RevPAR growth since the downturn, and the momentum shows no signs of slowing.

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Resorts were hit hard by the last downturn; the demand fundamentals for two of its largest guest segments – leisure travellers and group business – took longer to recover. However, resorts are proving ‘worth the wait’ and transactions for the asset class exceeded US$3 billion during H1 2014. Resort assets represented nearly 25% of total transactions in the first half of 2014 as consumer confidence continued to make gains. A potential trend to watch will be offshore investors’ increased foray into this segment.

U.S. debt markets continue to strengthen

The U.S. debt markets for acquisitions and refinancings continue to be robust. The tightening in spreads in both floating and fixed-rate debt is unabated, with floating-rate CMBS lenders still heading the charge in terms of proceeds and pricing for larger, higher-quality assets. Banks and other balance sheet lenders are becoming increasingly active while maintaining underwriting discipline.

U.S. Hotel CMBS Issuance, 1995-2014

Source: Commercial Mortgage Alert

According to Commercial Mortgage Alert, hospitality lending comprised 20% of all CMBS originations in H1 2014, compared to 15% a year ago, having increased from US$7.1 billion in H1 2013 to US$8.3 billion in H1 2014. This activity proves the re-emergence of the floating-rate CMBS market, which had been largely muted since the global economic downturn.

All eyes on Europe

Transaction activity in EMEA is up when compared to last year, with volumes totalling US$8.4 billion for H1 2014 supported by continuously improving trading fundamentals across European cities and strengthening investor confidence in the region.

Interest is now centred on Europe with an abundance of capital chasing deals. The high level of competition for a limited number of opportunities is discouraging some hotel investors from participating in this competitive process. With the availability of cash and debt financing, investors are continuing to seek the right assets and are now actively exploring development opportunities. We anticipate an increase in product availability later this year with a number of ‘big ticket’ products expected onto the market in early autumn.

0 5 10 15 20 25 30 35 40 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD Q2 2013 YTD Q2 2014 US $ Billions

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The UK remains Europe’s most active market with investment volumes totalling US$2.6 billion for H1 2014 (30% of total EMEA volumes), followed by Germany at US$1.6 billion (19%) and Spain at US$990 million (12%). The Netherlands and France also feature strongly, collectively accounting for another 15% of total market liquidity.

Although activity has remained focused on single-asset sales, the high interest in portfolio platforms has translated into a number of significant transactions. However, a lack of available opportunities coming to the market continues to hamper growth in portfolio sales across the region.

Private equity funds again

EMEA’s dominant investor groups in H1 2014 were once again private equity funds, both on the buy-side (39% of transaction volumes) and sell-side (30%).

Hotel operators increased their activity, with the group accounting for about a quarter of all transactions in H1 2014. This trend became particularly sound during the second quarter when Accor started to implement its new strategy. This strategy has translated into acquisitions of large portfolios in Germany, the Netherlands and Switzerland with all three being operated by Accor since 2007-2008 under variable-rent leases. As a result, Accor has become the most active buyer in Europe.

At the same time, those hotel operators continuing to pursue asset-light strategies, remained active on the sell side, accounting for 22% of overall hotel market liquidity. Developers and property companies have also been selling some of their assets in pursuit of additional capital to repay their loans and finance new projects.

Asian capital buying beyond the core markets

Europe continues to feature as the top market on the radar of cross-border capital, with strong demand originating from Asia, the Middle East and the U.S. Asian investors, particularly Chinese, are becoming familiar with European hotels, having bought into traditionally strong markets such as London and Paris, and are now increasingly exploring the rest of the region, notably Spain and Ireland.

Spain featured strongly in H1 2014

The main change in the region has been the return of an active transactions market in Spain. Strengthening tourism demand, gradual economic stabilisation and improving trading fundamentals have created a positive outlook for the lodging market, where at the end of 2013 many international players started to close on transactions; and the trend has continued into 2014. With Madrid, Barcelona and Mallorca setting the pace, total liquidity of the Spanish hotel market has already exceeded volumes registered in the full-year 2013, having reached almost US$1 billion in H1 2014. A combination of factors has seen Barcelona turning into the ‘sweet spot’ of Spain, and it becoming even more robust over the last six months. With few existing hotels available in the market, competition for product has remained strong and although average rates are still below 2007 levels, over 50 months of consecutive RevPAR growth has led to optimism. But, more capital is now going to resort markets, with the Canary and Balearic Islands at the forefront of the activity.

Spain has also featured as a hot spot for cross-border capital which accounted for more than 40% of all transactions completed in H1 2014. U.S. private equity capital is actively looking at opportunities but has yet to assert itself, while Asian (primarily Chinese) and Middle Eastern (Qatari) investors have already completed a number of significant deals. An ever improving debt environment

The European hotel lending market has opened up very quickly, creating a competitive environment where most of the market is now well served in terms of type of lending (refinancing, conversion, and development) and ticket size.

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COPYRIGHT © JONES LANG LASALLE IP, INC. 2014. All Rights Reserved 32 The hotel lending market landscape in Europe is currently experiencing marked changes. Traditional balance sheet lenders have been subjected to increased core capital requirements and regulation under Basel III, keeping spreads from compressing too fast. At the same time, the shadow banking system has found a spot on the field where they previously had no room to play. As a result, the market is dominated by cash-flow lenders seeking stabilised debt yields of at least 9% coupled with bespoke risk mitigating covenant structures.

Momentum continues to build in Asia Pacific

Activity in Asia Pacific totalled US$3.6 billion in H1 2014, showing a slight decline of 3.7% compared to the same period last year, with fewer landmark deals taking place and higher volumes being held back by a lack of investment

opportunities.

Focus is on portfolio deals in Asia

The first six months of 2014 were characterised by increased activity in portfolio deals across the region, with the largest being the sales of Amanresorts portfolio across several countries, the Lone Star and Comfort hotel portfolios in Japan, and a portfolio of Tune Hotels in Indonesia. A successful listing of Frasers Hospitality Trust in Singapore further proved robust investor confidence in Asia.

The main action took place in four markets – China (26%), Japan (26%), Australia (16%) and Malaysia (8%) – which collectively accounted for three-quarters of regional investment volume. An increasing number of transactions involve mixed-use schemes with a hotel component.

Japan is at the heart of hotel investment activity

Japan continues to be the most active market, with liquidity reaching US$915 million of disclosed deals in H1 2014,

including a number of portfolio sales completed by J-REITs, and we expect this strong sentiment to be maintained through 2014. Unlike the predominantly domestic market in China, Japan increasingly attracts both local and international capital.

China is ‘Going Global’

China remains one of the biggest investment markets in Asia Pacific, although activity is still almost exclusively

domestic, with no cross-border capital flowing into the country. At the same time, being encouraged by the government’s ‘Go Global’ policy, Chinese investors have already become one of the largest cross-border commercial property

investors in the world and are increasingly seeking offshore hotel opportunities for diversification purposes, notably in gateway cities and strong secondary markets worldwide. In H1 2014, a number of significant single-asset transactions were closed by Chinese capital, with deals happening in all regions.

Single-asset transactions shape the investment scene in Australia

Australia continues to attract the bulk of investor interest, with Asian capital being particularly keen on entering this

market. Activity remains high and will be further boosted by the anticipated sale of the Sheraton on the Park in Sydney later this year for an estimated A$450 million. However, with yields compressing further, the market is becoming too expensive for many, which will constrain growth in investment volumes.

Unlike the Asian markets, where a number of portfolios changed hands in H1 2014, 100% of all deals closed in Australia were single-asset transactions. At the same time, the average ticket size during the first half of the year has doubled compared to the same prior-year period, driven by compressing yields under a growing weight of capital.

Strengthening markets trigger real estate development cycle. Global Market Perspective Q3 2014

Strengthening markets trigger

real estate development cycle

Global Market Perspective

Third Quarter 2014

Strengthening markets trigger real estate development cycle

10%

15%

25%

20%

+ 10-20%

+ 5-10%

+ 0-5%

- 0-5%

- 5-10%

Capital Values

Rental Values

Global Market Perspective

Contents

Global Economy

Real Estate Capital Markets

Investment Volumes

Americas

EMEA

Asia Pacific

10%

15%

25%

20%

Capital Values and Yields

Q2 2014

Q2 2013

Americas

EMEA

Asia Pacific

Corporate Occupiers

Global Real Estate Health Monitor

Office Markets

Office Demand Dynamics

Europe

Asia Pacific

U.S.

Global

FY 2013

FY 2014

+6%

0-5%

-11%

~ 5%

~ 5%

-5%

15-20%

+1%

Office Supply Trends

Office Rental Trends

8.6%

7.6%

2.2%

1.5%

4.2%

Q2 2014

Q2 2013

Retail Markets

Industrial Warehousing Markets

Hotel Markets