GLOBAL INVESTOR

SENTIMENT SURVEY
Quarter 1 2010
Global Real Estate
Investment
March 2010

Global real estate capital flows plummeted in 2009, falling 46% relative to
2008 and 79% below 2007 levels. Real estate transactions from all regions
of the world totaled just US$141 billion in 2009, an amount just below what
the Americas recorded in Q1 2007 alone. After such a steep fall-off and in
an effort to better understand the mindset of real estate investors, Colliers
International undertook the task of surveying real estate professionals from
all corners of the globe. The result is a snapshot of the current sentiment
and outlook for the global real estate marketplace, providing valuable insight
into how property markets are expected to perform over the coming months
and years. Much uncertainty still exists, but capital flows are showing signs
of coming off the bottom and current investor sentiment indicates we are on
the verge of the next up-cycle for property markets around the world.

Jamie Horne
Executive Sponsor
Colliers International
Global Investment Services Team (GIST)

About the Survey

• The 2010 Global Investor Sentiment Survey was launched on February

15th and closed on March 1st 2010
• The survey contained a wide variety of questions generated by Colliers
International Research in collaboration with senior Colliers professionals
from the Colliers International Global Investment Services Team (GIST)
• Major Institutional and Private investors representing a broad cross-
section of property investors across the globe were invited to complete
the survey; There were a total of 244 respondents, whose combined
investment portfolio exceeds $300 billion
• The global survey follows the success of our Australian investor survey
and provides some interesting insight on current investor sentiment
• The primary purpose of the survey was to better understand global
investor sentiment in the current marketplace; including investors’ outlook
on the coming 12 months
 GLOBAL INVESTOR
SENTIMENT SURVEY
A review of investor sentiment

Key Findings
• Most investors (almost two thirds) are looking to expand their real estate • Respondents also overwhelmingly
portfolios, leaving just under a third either holding steady or rebalancing reported a shift toward high-
their existing portfolios quality, well-performing assets
• The vast majority (80%) have little or no appetite for cross-border and a simultaneous shift out of
investment (outside their domestic market) non-income producing real estate
or anything with a “high risk”
• Investors - such as those in the USA, Australia, Canada, Germany and the profile
UK - are predominantly interested in their respective domestic markets
only. However, they also singled out a number of emerging countries - • Many investors viewed the events
such as Poland, Ukraine, Vietnam, Brazil and India - for possible future of the past two years as a good
investment. reminder that commercial real
estate is highly cyclical and timing
• Globally, rents are anticipated to hit bottom this year. The most frequent (both in and out of the market) is
response was Q4 2010 for the Office market, followed by Q2 and Q3 critical to making profits
2010 for Industrial and Q3 or Q4 2010 for Retail
• Considerable divergence exists when asked when a more “normal”* market
will emerge, but most investors listed either late 2010 or early 2011
• Investors in Asia and the Pacific (Australia and New Zealand) expect
the market to return to normal by Q4 2010, followed by those in Canada,
Latin America, Eastern Europe and Western Europe by Q1 2011, and * Most determined “normal” yields
those in the USA who said in Q2 2011 (capitalization rates) as 7.0 - 7.5% for office,
8.0-8.5% for industrial and 6.5%-7.5% for
• While a clear majority of investors were looking to expand their retail product; considerable variation exists
around these price ranges with some regions
real estate portfolios, most expressed high degrees of caution and already back to these levels and beginning to
significantly more rigorous due diligence track back down.

3
 PROPERTY
INVESTMENT STRATEGY
The events of the past two years had a measurable
effect on investors, with no region spared. But
while many investors are dealing with portfolios
that are under-performing relative to expectations,
the majority (64%) of survey respondents
indicated that they are looking to add to their
existing portfolios over the coming 12 months.

STRATEGY:
How would you describe your property
investment strategy for the next 12 months?

80
70
60 64%

50
Percentage

40
30
20
20%
10 11%
5%
0
Contract Remain the Expand Rebalance
same

64% OF
RESPONDENTS ARE
LOOKING TO EXPAND
THEIR PORTFOLIOS
DURING THE NEXT 12
MONTHS

4
 BUYING
PROPERTY
BUYING PROPERTY:
During the next 12 months, do you intend to
buy property off-shore (Overseas)?

60
60%
50
40
Percentage

30
20
20% 20%
10
0 80% OF INVESTORS
Yes No No off-shore portfolio
INDICATED EITHER A
Despite a fairly negative global economic backdrop, survey respondents felt
REAL RELUCTANCE TO
that real estate prices today represent good value, and many are willing to INVEST BEYOND THEIR
look past what could be a difficult period in terms of rents and vacancies. OWN BORDERS – OR
Indeed, respondents expect industrial rents to bottom out as soon as mid- DO NOT EVEN HAVE
year 2010, retail by the end of the third quarter and office by year-end. This
A CROSS-BORDER
almost certainly goes a long way to explain why survey respondents expect
the investment market to be back to normal by either 2010 or early 2011. In PORTFOLIO
the meantime, however, 60% of investors indicated a real reluctance to invest
beyond their own borders, reflecting a more cautious stance taken by many.
Another 20% do not even have an off-shore portfolio, leaving 80% out of
cross-border investing, at least for the time being.

The investment mantra from all corners of the globe appears to be “stick to
what you know” and, unless the potential upside is significant, “stay close to
home and be content with more modest returns”. This approach was born
out of a desire to invest in more mature economies, forgoing the investment
potential in less mature markets. Until there is a positive shift in the global
market, most investment will likely be contained to domestic transactions in
the G7 economies and English speaking countries. However, as investors’
tolerance for risk increases, respondents listed a number of countries that
hold appeal for future investment, including Poland, Ukraine, Brazil, Vietnam
and India.

This tendency to invest domestically is almost certainly a short-term

phenomenon. The return of cross-border investing is sure to be seen once
investors have a greater comfort level concerning the global economy and the
global financial system.

5
 Peak
12
11 1

10 2
THE GlobAl PROPERTY CLOCK

Downswing
upswing

9 2% 3

19% 12%
8 4
14% 20%

7
21% 5
6
TROUGH

Current cycle
Market Sentiment:
Thinking about the global property clock,
what stage of the property cycle do you
believe your region to be in currently?
• Most investors feel their that domestic market is nearing the
bottom, with 41% indicating that the market is between 5:00
and 6:00 on the Global Property Clock *
• 19% believe that their domestic market has already moved off
the bottom and is sitting at 8:00 on the Global Property Clock *

6
 Peak
12
11 1

10 2

THE GlobAl PROPERTY CLOCK

Downswing
upswing

9 14% 3

30% 3%
8 4
21% 4%

7 16% 5
6
TROUGH

cycle in 12 months
Market Sentiment:
Where do you anticipate the global
property cycle in your region Will be in
12 months?
• By comparison, in 12 months, 51% (a slight majority) believe
that their domestic market will be moving into an upswing
(between 7:00 and 8:00) on the Global Property Clock *
* Majority results based on median of 244 responses

7
 REGIONAL PROPERTY CLOCK
Current cycle cycle in 12 months

8:30 8:30
Property markets
AMERICA

Peak Peak
12 12 are already in
LATIN

11 1 11 1
recovery mode
10 2 10 2
and will still be
upswing

upswing
Downswing

Downswing
characterized
9 3 9 3
by a general
4 4
upswing in
8 8
leasing activity
7 5 7 5
6 6
one year
TROUGH TROUGH from now.

7:00 8:00
AUS / NZ

Peak Peak
PACIFIC

12 12
11 1 11 1 Property
10 2 10 2 markets are
already through
upswing

upswing
Downswing

Downswing

9 3 9 3 the worst
and will be in
8 4 8 4
recovery mode
7 5 7 5 in one year.
6 6
TROUGH TROUGH

6:00 8:00
Peak Peak

11
12
11
12 Property
1 1
ASIA

markets are
10 2 10 2
at or near the
upswing

upswing
Downswing

Downswing

bottom and
9 3 9 3
projected to
8 4 8 4
be in recovery
mode in one
7 5 7 5
6 6 year.
TROUGH TROUGH

8
 Current cycle cycle in 12 months

6:00 7:00
Peak Peak

11
12
11
12 Property
1 1
markets are
USA

10 2 10 2
at or near the
upswing

upswing
Downswing

Downswing
bottom and are
9 3 9 3
expected to be
8 4 8 4
showing signs
of recovery one
7 5 7 5
6 6 year from now.
TROUGH TROUGH

5:00 7:00
CANADA

Peak Peak
12 12
11 1 11 1 Property
10 2 10 2 markets
nearing the
upswing

upswing
Downswing

Downswing

9 3 9 3 bottom and are

expected to be
8 4 8 4
showing signs
7 5 7 5 of recovery one
6 6
year from now.
TROUGH TROUGH

5:00 7:00
WESTERN

Peak Peak
EUROPE

12 12
11 1 11 1 Property
10 2 10 2 markets
nearing the
upswing

upswing
Downswing

Downswing

9 3 9 3 bottom and are

expected to be
8 4 8 4 showing signs
7 5 7 5 of recovery one
6 6 year from now.
TROUGH TROUGH

9
 REGIONAL PROPERTY CLOCK
Current cycle cycle in 12 months
MIDDLE EAST

4:30 7:00
Peak Peak
12 12
11 1 11 1
Property
10 2 10 2 markets still on
upswing

upswing
Downswing

Downswing
the downward
9 3 9 3
leg but are
4 4
expected to be
8 8
showing signs
7 5 7 5
6 6
of recovery one
TROUGH TROUGH year from now.

5:00 5:00
EASTERN

Peak Peak
EUROPE

12 12
11 1 11 1 Property
10 2 10 2 markets
nearing the
upswing

upswing
Downswing

Downswing

9 3 9 3 bottom and
are expected
8 4 8 4 still be on the
7 5 7 5 downward leg
6 6
of the cycle one
TROUGH TROUGH
year from now.

The likely reason most investors are planning to expand their real estate
portfolios in the coming year is that the majority believe that their respective
domestic real estate markets are at or near the bottom. This was reflected
by two thirds of respondents believing that their domestic markets are
between 5:00 and 6:00 on the Global Property Clock, with 12:00 being the
top of the market and 6:00 being the bottom. Furthermore, a significant
percentage believe that their respective markets will be at either 7:00 or
8:00 in 12 months time. This point on the Global Property Clock indicates a
growing market, characterized by a general upswing in demand for leasing
and the beginning of rising rents.

10
CONCERNS AND FACTORS
AFFECTING INVESTMENT
• Availability of debt and equity capital 67% of investors
feel their market is
• Availability of product (property to purchase) nearing the bottom
• “Reasonable” pricing
• Economic conditions and associated leasing /
letting risk
• The ability to trade up to higher quality real estate
• Risk avoidance and deleveraging where possible
• The ability to seek out “broken” condo deals
• Opportunities that may present themselves
because of competitors’ misfortunes

Investors worldwide all expressed a real concern about the availability of strong desire to move up the “quality”
capital. Real property is a capital-intensive industry, so it is not surprising ladder. Parallel with this flight to
that one of the top concerns for investors is an adequate supply of debt quality, investors have little appetite
financing at a reasonable price. Interestingly, normal price in initial yield for risk, whether it be vacancy,
or capitalization rate terms varied by property type, but normal for office refinancing, construction or in the
was felt to be 7.0%-7.5%, with 8.0%-8.5% for industrial and 6.5%-7.5% case of global investing, currency or
for retail. By these metrics, many regions have already risen to these political instability.
“normal” levels and are now back on the way down, with the exception
of the US, where capitalization rates have risen higher. The US cap rates Highlighting the competitive nature
have almost certainly escalated because of the abundance of distressed of property investing, one of the key
property in the marketplace. themes running through the survey
was that investors perceive an
Of equal concern was the lack of “for sale” high-performing core property, increasing ability to either acquire
with many survey participants complaining that there was almost nothing “distressed” assets - properties that
to buy, certainly not at a reasonable price. Survey respondents indicated just a short time ago were beyond
that new lending underwriting standards were not “consistent” with asking their investment reach - or else
prices and was creating gridlock in the transactional sales market. Looking can now put together a realistic
forward, investors will have to provide more equity than even today and “distressed” asset plan, an investment
accept lower returns, while sellers will have to drop their prices to reflect a strategy they could not previously
weakened occupier market and more stringent financing conditions. consider. Numerous bankruptcies,
distressed property and the unwinding
Consistent with a heightened sense of risk, investors also expressed an of joint venture partnerships are
overwhelming desire to trade up to higher quality real estate. Whether it providing liquid investors the
is a prime location, a major metropolitan area, the best physical structure opportunity to expand their portfolios
or a tenant role comprising multinational corporations, investors showed a at their competitors expense.

11
 ACCESS TO DEBT
• 40% of survey respondents think access to debt
is easier now than 12 months ago, but this is only
DEBT
marginally more (39%) than those who thought IN THE
that debt is now more difficult to source
• The majority (52%) are finding that the cost of
REGIONS
• Investors in Asia, Canada, Latin
debt is higher today than 12 months ago America and Western Europe
• Looking forward 12 months, 89% believe access indicated an improvement in
access to debt over the last year,
to debt will be easier to find or at least the same while those in the US and the
as today, with only 11% thinking that debt will be Pacific registered no significant
change. Meanwhile, investors
more difficult to access in the Middle East and Eastern
• Interestingly, while most think availability of debt Europe saw less debt financing
will improve, 52% think that the cost will have • 1 2 months from now, investors
in all regions are expecting better
increased relative to now access to debt financing with the
exception of the Middle East
• In terms of cost, investors in
Cheap and ample debt is the elixir of a robust and growing real estate
Western Europe, the Middle East,
market; the 2002–2007 period demonstrated that perfectly. Beginning
Eastern Europe, the USA and the
mid-2007 with the onset of the global credit crisis, access to debt
Pacific all indicated that the cost
financing was greatly reduced, and with only just a few exceptions,
of debt had increased over the
access to debt is still a challenge for many investors and was one of
past 12 months, with Asia and
the primary concerns expressed by survey respondents.
Latin America showing no change
and Canada a slight decrease
Somewhat surprising, however, was the near even split between those
that think access to debt is more difficult today than 12 months ago and •A
 year from now, investors in
those that think it is easier. The discrepancy is most likely a function the US, Canada, Western Europe,
of the investors’ respective regions and the varying degrees of capital the Middle East and the Pacific
market strength. A year from now, however, the near consensus view all expect borrowing costs to be
is that debt will be either easier to find, or, at a minimum, the same as up from where they are today.
now. A slight majority also think the cost of debt will be up relative to Investors in Asia do not anticipate
today, most likely reflecting the view that many Central Banks will raise any significant change, while
interest rates over the next 12 months, and long terms rates - and by those in Eastern Europe and
default, mortgage rates will also likely see a similar increase. Latin America expect borrowing
costs to be lower

12
 Financing:
Overall, how has the cost of debt capital in
your region changed in the past 6 - 12 months?

60 Cost of debt

50 52%

40
Percentage

30 32%

20
16%
10
0
Become less Become more No change
expensive expensive

Financing:
Overall, how do you think the cost of debt
capital in your region will change in the next
6 - 12 months?

50 Cost of debt

40 41%
37%
30
Percentage

20 22%

10

0
Become less Become more No change
expensive expensive

13
 Sustainable
Buildings
• A slim majority (51%) appear willing to pay a
premium to purchase a “sustainable” building
• If an investor was prepared to pay a premium,
most would lower the yield/capitalization rate by
25 basis points, although 10 basis points was the
most frequent response
• When asked why a premium might be worth
paying for a sustainable property, the most
frequent responses included lower future capital
expenditures; higher value retention; social
responsibility; the ability to attract large corporate
and government tenants; free marketing; a
competitive edge when trying to attract tenants;
and “future proofing” with respect to possible
carbon taxes
14
51% would pay a
premium to purchase
a “sustainable”
building
Worldwide, real estate investors
have become considerably more
attuned to the evolution of green
building practices and the move
towards more sustainable buildings.
The perception is that green
buildings are more expensive to
construct so the question is will
investors pay a premium? When
asked this question, only a very
small majority indicated that they
would pay a premium. Indeed,
almost no respondents would pay
more than 25 basis points and
the most frequent response was
just 10 basis points. This was
despite many respondents listing
lower future capital expenditures
as one of the key benefits of a
green building. Other benefits
included the ability to attract
socially conscious corporate and
government tenants and “future
proofing” with respect to possible
carbon emission taxes.
 Sustainability:
Would you pay a premium for a sustainable
building?

Yes
No

51% 49%

LOWER CAPITAL
EXPENDITURE &
HIGHER VALUE
RETENTION WERE
Sustainability: JUST TWO OF THE
What premium (lower cap rate / yield) would REASONS WHY
you pay for a sustainable building? INVESTORS WOULD
(Answers in basis points) PAY A PREMIUM FOR
A SUSTAINABLE
PROPERTY
35 Level
-5
30 31% -10
-15
25 -20
-25
20 -30
Percentage

-35
15 17%
-40
14%
10 11%
12%
10%

5
1% 1%
2%
0
Premium

15
 CONCLUSION
As a group, the majority of respondents expressed a relatively high
degree of optimism in the overall global economy and state of the real
estate market, reflected by a wish to expand their property portfolios.
But many also have serious concerns, mostly tied to the underlying
economy, particularly post-government stimuli. Most respondents also
recognized that financing is central to any type of return to a more
normal market.

With property values down by as much as 40% worldwide, as is the case in the United States, refinancing is
going to be very difficult, at least in the near future, particularly in the absence of a public debt market (CMBS;
Commercial Mortgage Backed Securities). While more traditional lenders are slowly returning to the market,
depressed property values and stricter underwriting standards are going to be a serious limiting factor.

Another theme running through the survey results was a seismic shift toward high-quality, well-
performing assets and a simultaneous shift out of non-income producing real estate or anything with
a “high risk” profile. The move back towards income and less emphasis on capital appreciation was
best captured by the sentiment from one survey respondent who stated, “capital gains are just a
bonus; we buy property for income”.

Lastly, many investors expressed the view that real estate cycles are now shorter and more severe compared
to historical norms, which serves as a warning to others that, going forward, market participants will need to
be more nimble, and access to current and insightful analysis will be more important than ever.

This survey was produced in collaboration with senior professionals from the Colliers International Global
Investment Services Team (GIST). The group provides unparalleled knowledge and expertise in investment
sales services to a broad range of institutional and private clients around the world.

Annually, GIST members negotiate billions of dollars in investment sales transactions. They have
successfully assisted clients in maximising the value of their real estate assets in office, retail, multi-family,
hotel, industrial and logistic transactions.

16
17
 © Colliers International all rights reserved. No part of this work may be reproduced or copied in any form or by any means (graphic, electronic or
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Colliers International does not give any warranty in relation to the accuracy of the information contained in this report. If you intend to rely upon the
information contained herein, you must take note that the information, figures and projections have been provided by various sources and have not been
verified by us. We have no belief one way or the other in relation to the accuracy of such information, figures and projections.
Colliers International will not be liable for any loss or damage resulting from any statement, figure, calculation or any other information that you rely
upon that is contained in the material. © 2010

18
 Investment Services
Global Investment Services
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19