GLOBAL ECONOMICS, REAL ESTATE PRICING & OUTLOOK FOR …€¦ · CBRE 6 ECONOMICS, PRICING & OUTLOOK...

GLOBAL ECONOMICS, REAL ESTATE PRICING

& OUTLOOK FOR 2017

RICHARD BARKHAM

GLOBAL CHIEF ECONOMIST

BREXIT

TRUMPISM

4 ECONOMICS, PRICING & OUTLOOK FOR 2017 CBRE

EURO-TRUMPISM


5

6

7

8

1980 1982 1983 1984 1985 1987 1988 1989 1990 1992 1993 1994 1995 1997 1998 1999 2000 2002 2003 2004 2005 2007 2008 2009 2010 2012 2013 2014 2015

IRAN-IRAQ

WAR STARTS

INDIRA GANDHI

KILLED

REAGAN

SHOT

FALKLANDS WAR

LOCKERBIE

BOMBING

GLASNOST IN

USSR

US EMBASSY IN

BEIRUT BOMBED

IRAN-IRAQ

WAR ENDS

BERLIN WALL

FALLS

IRAQ INVADES KUWAIT

1ST GULF WAR

MAASTRICHT TREATY BOSNIAN WAR ENDS

BRITISH RULE IN

EUROZONE

CREATED

9 / 11

US INVASION OF

IRAQ

MADRID TRAIN

BOMBING

GAZA WAR

RUSSO-GEORGIAN

WAR

SYRIA WAR

ISIS

EMERGES

JAPANESE TSUNAMI

PARIS BOMBING

BREXIT VOTE /

TRUMP

FALL OF THE

SOVIET UNION

CRIMEA

ANNEXED

LET’S GET GEOPOLITICS IN PERSPECTIVE

Source: CBRE Research, Macrobond, IMF, WEO.

G7 COUNTRIES, UNEMPLOYMENT RATE (%)


5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

ONLY THE CYCLE MATTERS

Source: CBRE Research, Macrobond, IMF, WEO.

G7 Countries Unemployment Rate (%)

We are close to

the cyclical

trough


THE CYCLE DRIVES WORLD EQUITY VALUES

-60

-40

-20

0

20

40

60

80

100 4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

MSCI Equities 2Y-o-2Y (%) G7 Unemployment (%)

G7 Unemployment (inverted) MSCI World Equities Index (2y/2y)

Source: CBRE Research, Macrobond, MSCI, 2016.

2 year lag


…AND WORLD REAL ESTATE VALUES…

4.00

5.00

6.00

7.00

8.00

Global Composite Office Yield G7 Unemployment

G7 Unemployment and Global Composite Office Yield (%)

Source: CBRE Research, Macrobond, 2016.


…AND FUNDAMENTALS (EUROPEAN OFFICE VACANCY )

Source: CBRE Research, Macrobond

European Office Vacancy (%) G7 Unemployment (%)

4

5

6

7

8

9

2

4

6

8

10

12

14

1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

European Office vacancy G 7 Unemployment

SLUGGIS

H


AND RENTAL PRESSURE

SOURCE: CBRE RESEARCH, MACROBOND.

Euro Office Rental Growth (%) G7 Unemployment (%)

0

1

2

3

4

5

6

7

8

9

-30

-20

-10

0

10

20

30

40

1987 1989 1990 1991 1993 1994 1995 1997 1998 1999 2001 2002 2003 2005 2006 2007 2009 2010 2011 2013 2014 2015

Average Euro Offices G7 Unemployment

SLUGGIS

H

GEOPOLITICS RARELY BRINGS

THE CYCLE TO AN END

• Headline slide V.2, use

this slide to highlight an

important headline or

information in a

presentation.

12 Economics, Pricing & Outlook For 2017

CBRE

INTEREST RATES ARE KEY TO THE END OF THE CYCLE

G7 INTEREST RATE, DEVIATIONS FROM TREND AND G7 UNEMPLOYMENT

-2

-1

0

1

2

3

4

5

4

5

6

7

8

9

1980 1982 1983 1985 1986 1988 1989 1991 1992 1994 1995 1997 1998 2000 2001 2003 2004 2006 2007 2009 2010 2012 2013 2015 2016

Interest Rate (%) G7 Unemployment(%)

G7 Unemployment G7 Interest rate, deviations from trend

Spike Spike Spike No Spike


SO WHY IS IT

NOT HAPPENING?

• Headline slide V.2, use

this slide to highlight an

important headline or

information in a

presentation.

ITS BEEN A VERY

TOUGH RECOVERY


THE U.S. WAS VERY BADLY DAMAGED BY THE GFC

U.S. UNEMPLOYMENT (U3 AND U6, %)

Source: CBRE Research, BLS, Q3 2016.

0

2

4

6

8

10

12

14

16

18

1994 1997 2000 2004 2007 2010 2014 2017

U6 Unemployment U3 Unemployment U3 Unemployment forecast U6 Unemployment forecast

17.1%

9.0%


THE EUROZONE CRISIS WAS A MAJOR HICCUP

Eurozone Unemployment (%)

Source: CBRE Research, Macrobond, Q3 2016.

6

7

8

9

10

11

12

13

2000 2003 2006 2009 2012 2015 2018

Unemployment Unemployment Forecast What might have been

Four wasted years


THE RISE AND SLOWDOWN IN CHINA IS PART OF THE STORY

Source: CBRE Research, Macrobond.

China GDP Growth Y-O-Y (%)

4

6

8

10

12

14

16

1992Q1

1993Q1

1994Q1

1995Q1

1996Q1

1997Q1

1998Q1

1999Q1

2000Q1

2001Q1

2002Q1

2003Q1

2004Q1

2005Q1

2006Q1

2007Q1

2008Q1

2009Q1

2010Q1

2011Q1

2012Q1

2013Q1

2014Q1

2015Q1

2016Q1

2017Q1

2018Q1

2019Q1

2020Q1

GDP growth GDP growth forecast

AVERAGE 10%

AVERAGE 9%

NEW NORMAL 6%


MOST RECENTLY AN EMERGING MARKETS CRISIS


Average annual GDP growth (%)

-4

-2

0

2

4

6

8

10

12

China Emerging Markets Brazil Russia Opec

2002 - 2013 2014 -2016


DEMAND SHOCKS HAVE KEPT INFLATION DANGEROUSLY LOW

Core CPI Inflation vs. Target

Source: CBRE Research, Macrobond, Q3 2016.

0.0

0.5

1.0

1.5

2.0

2.5

Canada France Germany Italy Japan UK U.S.

Core…


THERE IS A BIGGER

PROBLEM OF

GLOBALIZATION


TRADE SHOCK FROM CHINA


Share Of World Manufacturing Output (%)

0

5

10

15

20

25

30

35

Canada France Germany Italy Japan UK U.S. Brazil China India Russia

2000 2016

REMEMBER THE FIRST OIL SHOCK?


CAPITAL RECYCLING THEN

OPEC THE WEST 1970s


CAPITAL RECYCLING NOW

THE WEST OPEC

CHINA

EMs Now


THE WORLD HAS FAILED TO DE-LEVER

Source: McKinsey Global Institute, CBRE Research, 2016.

Change In Debt To GDP By Country 2007 To 2014 (%)

0

0.5

1

1.5

2

2.5

3

3.5

4

Canada France Germany Italy Japan UK U.S. Brazil China India Russia

2007 2014


BACK TO THE CYCLE?


THE CHINESE STARTED IT


(5)

(4)

(3)

(2)

(1)

0

1

Jan-07 Oct-07 Jul-08 Apr-09 Jan-10 Oct-10 Jul-11 Apr-12 Jan-13 Oct-13 Jul-14 Apr-15 Jan-16

Bu

dg

et

bala

nce,

% o

f G

DP

China, Central Government Budget Balance, % of GDP

Major fiscal boost

TRUMP IS

ALSO ON

THE CASE


REAL WAGES ARE GROWING STRONGLY

SOURCE: CBRE RESEARCH, MACROBOND

US REAL EARNINGS GROWTH

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

REAL

EARNING

GROWTH

AVERAGE


INFLATION IS TRENDING UP

SOURCE: CBRE RESEARCH, MACROBOND

US CORE CPI

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

1993 1994 1996 1998 1999 2001 2003 2004 2006 2008 2009 2011 2013 2014 2016

CORE-CPI

TARGET

A MONETARY POLICY

RESPONSE SHOULD BE

EXPECTED


SHORT RATES HEADING UP

Source: Atlanta Federal Reserve, Bureau of Labor Statistics, Macrobond, CBRE Research.

U3 Unemployment (%) Fed Funds Rate (%)

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

0

2

4

6

8

Jan

1995

Jan

1996

Jan

1997

Jan

1998

Jan

1999

Jan

2000

Jan

2001

Jan

2002

Jan

2003

Jan

2004

Jan

2005

Jan

2006

Jan

2007

Jan

2008

Jan

2009

Jan

2010

Jan

2011

Jan

2012

Jan

2013

Jan

2014

Jan

2015

Jan

2016

Jan

2017

Jan

2018

Fed funds U.S. forecast (Oxford) Fed dots Forward curve Unemployment Unemployment (forecast)

Cyclical low last 20 years


LONG RATES HAVE ALREADY MOVED

Source: Macrobond, CBRE Research, 2016.

0

2

4

6

8

10

12/1

990

12/1

991

12/1

992

12/1

993

12/1

994

12/1

995

12/1

996

12/1

997

12/1

998

12/1

999

12/2

000

12/2

001

12/2

002

12/2

003

12/2

004

12/2

005

12/2

006

12/2

007

12/2

008

12/2

009

12/2

010

12/2

011

12/2

012

12/2

013

12/2

014

12/2

015

12/2

016

US Government 10 Year Bond Yield (%)


AN ERA OF DANGEROUS DOLLAR STRENGTH

SOURCE: CBRE RESEARCH, MACROBOND & ST. LOUIS FED

S&P 500 CORPORATE EARNINGS, USD NOMINAL TRADE WEIGHTED EXCHANGE RATE

80

90

100

110

120

130

100

120

140

160

180

200

220

240

260

2012 2013 2014 2015 2016

S&P 500 Corporate Earnings USD Nominal Trade Weighted Exchange Rate

CORPORATE EARNINGS (USD, BN)

EXCHANGE RATE (USD)


EMERGING MARKET $ DEBT

Source: CreditSights, Bloomberg Business review, BIS, BAML Index Data, Haver, 2016.

0

40

80

120

160

200C

zech

rep

ublic

Tha

iland

Chi

na

Mal

aysi

a

Tai

wan

Isra

el

Sou

th K

orea

Sou

th A

fric

a

Phi

llipp

ines

Pol

and

Rus

sia

Indi

a

Qat

ar

Mex

ico

Indo

nesi

a

Hon

g K

ong

Col

ombi

a

Sin

gapo

re

Chi

le

Tur

key

Bra

zil

Exports of Good Services & Income Receipts (%)

Private sector Loans Private sector


OUTLOOK FOR GLOBAL REAL ESTATE PRICING


WORLD REAL ESTATE PRICES

4.00

5.00

6.00

7.00

8.00

Global Composite Office Yield G7 Unemployment

G7 Unemployment and Global Composite Office Yield (%)



ACTUALLY TWO KEY DRIVERS GLOBAL OFFICE YIELDS VERSUS G7 BOND RATES AND G7 UNEMPLOYMENT

0.00

2.00

4.00

6.00

8.00

10.00

12.00

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

3/1/

1990

12/1

/199

0

9/1/

1991

6/1/

1992

3/1/

1993

12/1

/199

3

9/1/

1994

6/1/

1995

3/1/

1996

12/1

/199

6

9/1/

1997

6/1/

1998

3/1/

1999

12/1

/199

9

9/1/

2000

6/1/

2001

3/1/

2002

12/1

/200

2

9/1/

2003

6/1/

2004

3/1/

2005

12/1

/200

5

9/1/

2006

6/1/

2007

3/1/

2008

12/1

/200

8

9/1/

2009

6/1/

2010

3/1/

2011

12/1

/201

1

9/1/

2012

6/1/

2013

3/1/

2014

12/1

/201

4

9/1/

2015

6/1/

2016

Global Office Yield, G7 Average Bond Rate (%)

G7 Unemployment (%)

G7 Unemployment Global Composite Office Yield G7 bond rateSource: CBRE Research, Macrobond, 2016.


KEY COEFFICIENTS

SOURCE: CBRE RESEARCH

• 70 bps G7 bonds

• 50 bps G7 unemployment

CONCLUSIONS


• Globalisation has thrown up many problems

– Political volatility will be with us for some time

– Fiscal stimulus - immediate response – correct

– Trade and immigration checks – longer term response - wrong

• Capital glut diminishing

– Rates depressed in medium term, but end in sight?

• Cycle alive and well

– Demand shocks had moderating impact – this will reverse

• End of cycle

– Will driven by the U.S. – will unfold in emerging markets


• Real estate (firm conclusions)

– Fundamentals and rent pressure will protect values for 24 months

– But the era of yield compression is over – bond rates win in medium term

– Next recession probably reasonably mild

• Real estate (speculative conclusions)

– Regime shift – back to a higher inflation higher interest rate world

– More higher yielding bonds to compete with prime real estate

• Questions to be answered

– Will de-globalisation affect cross border capital flows?

PROFESSOR RICHARD BARKHAM PHD MRICS

GLOBAL CHIEF ECONOMIST

+44 20 7182 2665

[email protected]

THANK YOU

Date post:	10-Jun-2020
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