CORONAVIRUS SPECIAL UPDATE KEEP CALM, STAY HOME & CARRY ON 19 - - PowerPoint PPT Presentation

FOCUSED ON THE FUTURE OF REAL ESTATE

CORONAVIRUS SPECIAL UPDATE

KEEP CALM, STAY HOME & CARRY ON

19 MARCH 2020

RESEARCH & STRATEGY

Hans Vrensen CFA, CRE

MANAGING DIRECTOR Tel +44 (0)20 7016 4753 hans.vrensen@eu.aew.com

Dennis Schoenmaker Ph.D.

ASSOCIATE DIRECTOR Tel +44 (0)20 7016 4860 dennis.schoenmaker@eu.aew.com

Focused on the Future of Real Estate

WEAKENING GLOBAL GROWTH MIGHT TRIGGER 2020 RECESSION IN EUROPE

ECONOMIC FUNDAMENTALS COULD SIGNAL V-SHAPED RECOVERY

Sources: Oxford Economics, Moody’s, OECD & AEW

5

• 0.5

0.5 1 1.5 2 2.5 3 2020 Jan 2020 Mar Pandemic Scenario Global GDP growth (%)

Oxford Economics Moody's OECD *Not based on Pandemic

Focused on the Future of Real Estate

STOCK MARKET CORRECTION COMBINED WITH OIL PRICE DECLINE

IMPACT OF MASSIVE MONETARY & FISCAL POLICIES NOT YET IN STOCKS

Real Estate Equity PREE Real Estate Equity LREE Corp Equity LCE Real Estate Debt PRED Real Estate Bonds LREB Corp Bonds LCB

Sources: Bloomberg & AEW

6

20 30 40 50 60 70 80 90 100 110 60 80 100 120 140 160 180 Oil Price (€) European Stock Market (Index 2006=100)

European Stock Market Index (LHS) Oil Price (RHS)

2006 2008 2010 2012 2014 2016 2018 Q1 2020

Focused on the Future of Real Estate

RISK-OFF MENTALITY TRIGGERS GOVERNMENT BOND YIELDS DIVERGENCE

PREVIOUS SAFE HAVENS HAVE WIDENED OUT IN SHORT TERM

4

Sources: Bloomberg & AEW

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0

• 0.8
• 0.3

0.2 0.7 1.2 1.7 2.2

09/2019 10/2019 11/2019 12/2019 01/2020 02/2020 03/2020

Government Bond Yield (%) Government Bond Yield (%)

Diff (RHS) DE & FR ES & IT

Q3 2019 Q4 2019 Q1 2020

Focused on the Future of Real Estate

CORPORATE CREDIT YIELD SPIKES LINKED TO DECLINES IN MARKET RENTS

LEASES, NEED FOR SPACE & STABILITY IN TENANT CREDIT OFFER SHORT TERM PROTECTION

5

Sources: Bloomberg, CBRE & AEW

• 20%
• 15%
• 10%
• 5%

0% 5% 10% 15% 20% 25%

5 10 15 20 25 CRE Rental Growth (y-o-y, %) High Yield Corporate Bond (%)

ICE BofA Euro High Yield Index Effective Yield CBRE EU 15 rent growth index

Focused on the Future of Real Estate

STOCK MARKET MOVES ASSOCIATED WITH DELAYED CHANGES IN VOLUMES

NO CAUSALITY , BUT CURRENT PRACTICAL ISSUES LIKELY TO TRIGGER PAUSE

6

Sources: RCA, Bloomberg & AEW Q1 2019 Q3 2009 Q4 2009 Q3 2010 Q2 2016 Q2 2019 R² = 0.2462

• 50%
• 40%
• 30%
• 20%
• 10%

0% 10% 20% 30% 40% 50%

• 80%
• 60%
• 40%
• 20%

0% 20% 40% 60% 80%

Stock Market Performance (y-o-y, %)

Commercial Real Estate Volumes (y-o-y, %)

Focused on the Future of Real Estate

STOCK MARKET CORRELATES WITH PRIME VALUES OVER THE LONG-RUN

BROADENING RANGE OF POLICIES COULD TRIGGER STOCK MARKET REBOUND

7

Sources: CBRE, Bloomberg & AEW

• 50%
• 25%

0% 25% 50% 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 17th March Annual Percentage Change (q-o-q, %)

CRE Price Stock-Market Performance

Focused on the Future of Real Estate

NEGATIVE SHORT TERM IMPACT , BUT UNCERTAIN LONG TERM REPERCUSSIONS

KEY VIEWS

• Prime market rents have declined when corporate bond yields have moved out,

but investors are protected in the short term due to existing lease contracts

• In the short term, we expect practical issues with site visits and underwriting

to temporarily slow down investment activity.

• If stock markets remain where they are now, we expect capital values to come

down - albeit more slowly than equities.

• Uncertain long term repercussions as many new protective fiscal and monetary

policies are not yet fully implemented and priced into the financial markets.

• In contrast to the GFC, the current health crisis could be temporary as

fundamentals were strong at its outset, possibly signalling a V-shaped recovery.

19

Focused on the Future of Real Estate

BOSTON LONDON PARIS DÜSSELDORF HONG KONG AEW.COM

Q & A

RESEARCH & STRATEGY

Hans Vrensen CFA, CRE

MANAGING DIRECTOR Tel +44 (0)20 7016 4753 hans.vrensen@eu.aew.com

Dennis Schoenmaker Ph.D.

ASSOCIATE DIRECTOR Tel +44 (0)20 7016 4860 dennis.schoenmaker@eu.aew.com