Global Market Perspective - JLL

Global Market Perspective - JLL
February 2018

Global Market Perspective
JLL Global Research
Global Market Perspective                                                                                 3
Global real estate markets finish 2017 strongly, with a robust 2018 in prospect
Global Economy                                                                                            7
Growth edges higher with improvements across most major markets
Global Real Estate Health Monitor                                                                        10
Sydney, Stockholm and Singapore lead office rental performance
Real Estate Capital Markets                                                                              11
Investment activity ends 2017 on a high note; 2018 volumes set to soften slightly
Capital Values and Yields                                                                                17
Income growth supports continued office capital value appreciation; European yields fall to record low
Corporate Occupiers                                                                                      19
Co-working and shared space on the rise
Office Markets                                                                                           21
Leasing activity ends 2017 at highest levels in a decade; rental growth exceeds expectations
Retail Markets                                                                                           32
Retail markets focus on new business models, asset enhancements and tenant mix
Industrial Markets                                                                                       34
Record demand pushes vacancy rates to historic lows
Hotels Markets                                                                                           35
Economic growth extends hotels investment cycle with transaction volumes on par with 2016
Residential Markets                                                                                      38
Peak in new supply outpacing solid demand in U.S. multifamily market
Key Investment Transactions in Q4 2017                                                                   40
Noteworthy cross-border deals dominated by European portfolios
Illustrative Office Occupational Transactions in Q4 2017                                                 46
Co-working operators active in all three global regions

Real Estate Markets Enter 2018 on a High Note
Synchronised growth provides strong platform for 2018

Global real estate markets ended 2017 in impressive fashion, with 2018 projected to be another
solid year barring major financial, economic or political shocks. Office leasing volumes in the final
quarter of 2017 were at their highest level in a decade, while the global vacancy rate defied
expectations and continued to fall, despite being near the peak of the development cycle. This
helped to propel office rental growth to over 4% for the full year, above earlier forecasts and the
strongest increase since 2011. At the same time, absorption levels in the logistics sector were at
record levels, while vacancy fell to historic lows. Investors remain confident in the real estate
sector, with transaction volumes in the final quarter of 2017 surpassing the previous quarterly
peak in 2014. The synchronised global economic upswing provides a strong platform for 2018,
although it will be difficult to match the robust levels of last year and investment volumes are
likely to soften slightly due to a lack of product and continued investor discipline.

Global Commercial Real Estate Market Prospects, 2018

                               Investment                                              Capital values
                                                                                            3% Higher
                                 -5-10% Lower

          Leasing                                            2018                                   Rents
           -0-5% Lower                           prospects                                          3% Higher

                             Vacancy rate                                              Development
                                       Rising                                             Peaking

Leasing, vacancy, development, rents and capital values relate to the office sector.
Source: JLL, January 2018

Fourth quarter bounce lifts global investment volumes

Global real estate transaction volumes for the fourth quarter of 2017 came in at US$228 billion,
10% higher relative to the same period last year. This brings full-year volumes for 2017 to US$698
billion, 6% above last year’s total. While political uncertainty still looms, investors remained

confident in the performance of the real estate sector, reflected in Q4 2017 global investment
volumes surpassing the previous quarterly peak set in 2014.

Despite being in an extended cycle, the weight of capital seeking to enter the sector is still
significant. Although global markets continue to be liquid, the relative lack of product combined
with continued discipline are likely to limit investment growth in 2018 and we expect global
investment volumes to soften by 5%-10% to around US$650 billion. Nevertheless, investors are
still keen to access the sector and are now looking to new strategies such as debt financing, M&A
and alternative sectors as the search for yield continues.

Global office leasing volumes at highest levels for a decade

The global office leasing markets finished the year on a high note, with 11 million square metres
leased in the final quarter of 2017 across 96 markets, the strongest quarterly volume since 2007.
For the full-year 2017, gross leasing volumes were a healthy 4% higher than 2016 and at the top
end of our forecast range. Europe was the outstanding leasing market performer with activity up
an impressive 10%, while volumes in the U.S. were up by 3% on 2016 levels with new supply
providing greater choice for tenants.

2018 is set to be another good year and we have revised our global volume projections upwards to
close to 40 million square metres. Yet due to the exceptional 2017 result, this translates into a
modest 3% decline year-on-year, with volumes unlikely to hit last year’s impressive tally.

Global office vacancy rate falls, defying expectations

Office leasing markets ended the year a lot tighter than predicted, with the global office vacancy
rate defying expectations by falling marginally to 11.9% in Q4 2017, testimony to the capacity of
the market to absorb additional space.

Most of the vacancy rate decline was due to the continued falls in Europe, where vacancy dropped
further to 7.4% in Q4. Vacancy rates remained broadly flat in the Americas (at 14.9%) and Asia
Pacific (at 11.1%). Nonetheless, with the delivery of new offices expected at a relatively elevated
level during 2018, vacancy is projected to edge up in 2018 to around 12.2%.

Office rental growth strongest since 2011

Rents for prime offices across 26 major markets grew by 4.1% for the full-year 2017, double our
forecasts at the beginning of 2017 and the largest increase since 2011. More of the same is
expected for 2018, with growth projected to average 3% and top performances going to Singapore
and Sydney. Only Shanghai, Mexico City and Beijing are slated for rental corrections over the
coming year.

Rental Growth for Prime Offices, 2010-2018

                                8.0%   8.0%
 Rental change (y-o-y %)


                                                                   4.0%          4.1%
                            4                               3.6%
                                                                          2.9%             3.0%

                            2                 1.8%

                                2010   2011   2012   2013   2014   2015   2016   2017     2018F

Unweighted average of 26 markets
Source: JLL, January 2018

Retail markets focus on asset enhancement and tenant mix

Retailers are adapting and re-evaluating their existing physical space in response to the structural
change impacting the sector, with a notable acceleration in new business models and owners
investing to create mixed-use destinations for the evolving shopper.

The U.S. retail market expansion continues to slow as low vacancy and a focus on renovation of
existing space rather than construction keeps rents inching up, though at a reduced pace. Strong
confidence and job creation continue to drive consumer spending in Europe, although prime high
street rents are broadly stable in most markets. In Asia Pacific, many retail landlords are adjusting
tenant mixes while retailers focus on consumer engagement and experience, with generally flat
rents across the region.

A banner year for global logistics markets

Global logistics markets ended 2017 on a high, with robust demand and vacancy at historic lows
propelling further rental growth. The U.S. industrial market registered its best fourth quarter of
net absorption on record in Q4 2017, driving vacancy to an all-time low and spurring additional
rental growth. In Europe the regional vacancy rate has also fallen to a new low with 2017 take-up
well above the long-term average. Rents continued to edge up in most markets across Asia Pacific,
supported by the uplift in global trade. With buoyant demand and a lack of modern vacant space,
we expect continued rental growth momentum in 2018.

Continuing economic growth extends hotel cycle

The global travel market remains robust, leading to positive hotel operating performance in all
three global regions. Continuing economic growth is supporting a healthy hotel investment
environment, with global hotel transaction volumes totalling US$62.5 billion in 2017, on par with
the levels seen in 2016. Investment funds and private equity firms stayed the most active buyer

group in 2017, while institutional investors continued to increase their allocation to real estate,
more than doubling their share of acquisitions since 2014, from 4% to 10% in 2017.

New supply outpaces still solid demand in U.S. multifamily market
The U.S. multifamily rental market continues to adjust to an influx of new supply being delivered
across the country. 2017 marked the expected peak of the development cycle, with annual rental
growth decelerating and a slight rise in the national vacancy rate to 5.2%. With new ground-
breakings in the multifamily sector now slowing, fundamentals are well positioned to stabilise
over the next 18 to 36 months.

Institutional investor demand remains buoyant in continental Europe, with investment volumes
climbing higher in Germany while the Netherlands registered a record year for transactional
activity. The UK institutional market remained on its growth trajectory, with investment volumes
20% higher in 2017 and expectations of continued strong growth this year.

In Asia Pacific, a tight housing policy stance and limited issuance of pre-sales certificates have
impacted sales activity in Shanghai. Elsewhere, market sentiment has led to sustained sales
momentum in Singapore as well as Hong Kong, where buyers have snapped up flats in new

Global Economy
High hopes for 2018

The recent strong tone of economic data has led to a more-than-usually buoyant sentiment at the
start of 2018. There have often been high hopes in the past, but since 2012 these have swiftly been
dashed as challenges emerged to prevent lift-off. The big difference this time seems to be a
greater confidence that the long stagnation in the major economies may be ending a decade after
the Global Financial Crisis (GFC) and that this is synchronised with improvements elsewhere in the

After the Trump administration passed its major tax stimulus package in late 2017, much is
expected of the U.S. economy. Strong consumer-led momentum in H2 2017 pushed growth for last
year up to an estimated 2.4%, below its historic potential but much better than a poor 2016. The
tax package is expected to push this up to 2.7% in the current year – still short of Trump’s 3%
goals, though a three-year high nonetheless. Many are still cautious about the longer-term impact
of the tax cuts, however, and the recovery will be accompanied by rising interest rates as the Fed
continues to normalise.

In Europe, the end of an intense election year (if not yet of political uncertainty) has allowed the
economic upturn to move centre stage. Estimates for last year’s Eurozone growth have increased
to 2.4%, the highest in a decade. A slight dip is in prospect for the current year to 2.2%, but this
forecast was recently revised upwards with a significant hike to Germany, and upside remains
possible. In the UK, by contrast, another year of Brexit negotiations is expected to constrain
activity to a slightly disappointing 1.5%, a similar rate to 2017.

Fortunes in the dynamic Asia region have continued to be uneven. China’s performance has
outstripped expectations over recent quarters and the outlook for this year has edged higher.
Although India underachieved by a significant margin in 2017, forecasts for the next 12 months
remain significantly above trend and it is projected to outstrip China once again. Japan has also
seen its growth predictions edge higher thanks to strong investment and exports.

GDP Projections for 2018 in Major Economies – Recent Movements

                             Australia    China   France   Germany   India   Japan    UK       U.S.
October 2017                        2.3     6.2      1.8       2.0     7.5     1.6    1.5       2.4
January 2018 (Latest)               2.5     6.4      1.8       2.5     7.4     1.7    1.5       2.7
Change (bps)                        +20    +20       0.0       +50    -10      +10     0       +30

Source: Oxford Economics, January 2018

Policy-makers plot the path back to ‘normal’

Major central banks continue to move gradually towards interest rate renormalisation. The most
important changes in Q4 2017 were very well signalled, with a 25 bps rise in UK rates in November
and a similar U.S. hike in the following month creating few ripples. U.S. action is expected to
continue this year with three further increases currently pencilled in. Other central banks will be
reigning in asset purchase schemes (Eurozone and Japan) with interest rate rises still a year or
more away, while the Bank of England is odds-on to hold fire during 2018.
The main challenge for policymakers continues to be returning the global economy to its pre-crash
growth norms. Sustained monetary stimulus and numerous fiscal packages have failed to do this
and few are convinced that the recent U.S. package will buck the trend. Many see the underlying
problem as the corrosive impact of the GFC on productivity and (by implication) on income
growth. With real pay effectively unresponsive, growth rates tend to flounder once any immediate
stimulus is removed.
Unfortunately, there are few tools available to address this productivity problem – witness Japan,
which has not found a solution a generation on from its 1980s financial crisis. Restoring real wage
growth remains crucial to a return to past cyclical norms, though as yet evidence is still patchy.
Until it re-emerges, economic growth in the developed world is likely to underachieve.

Global growth edges higher, but not quite lift-off

Given this half-decade of below-par global growth, it is probably not surprising that commentators
are still cautious about prospects beyond the current year. Clearly data and sentiment suggest
risks are shifting to the upside, and the latest view from Oxford Economics shows global growth
sustaining its recent clip of over 3.5% a year. This is above the subdued rates of 2012-2016, but not
especially favourable compared with the past and certainly well below the strong mid-2000s

One uncertainty remains the durability of the U.S. upturn. As noted, the U.S. fiscal stimulus is
expected to raise growth in the short-term and is a major contribution to the peaking world cycle
this year. But forecasts suggest that there will be no acceleration and activity will ease again in
2019. This implies that 3% growth targets will be elusive, due to underlying demand fragilities,
subdued productivity and the ongoing impact of interest rate tightening.

Another challenge to a stronger global acceleration will be emerging markets. Here growth rates
continue to be relatively impressive at almost 5% a year. However, factors such as weaker
commodity prices, rising U.S. interest rates and the dollar, and geopolitical volatility have
prevented these dynamic economies regaining the momentum that was typical over the recent
past. These headwinds are not expected to ease and the outlook for the developing world is stable
at a slightly below-par rate.

Asia has the world’s most important emerging markets and is still the fastest-growing region.
Active policy averted the feared slowdown in China over the last 12 months, with GDP growth
projected to drift down towards 6% over the next two years in line with long-term goals to
rebalance economic activity. Indebtedness remains a downside risk, but the central view is of
benign transition.

In 2016, India seemed to be turning a corner after taking over as Asia’s growth engine, but the
economy has since faltered. Special factors in part explained this slowdown however, and a
reversal is in prospect over the next two years provided reform stays on track. Asia’s most
important developed economy, Japan, has now been in a low-growth rut for two decades. Near-
term prospects are brighter, but this expansion is expected to fizzle out by the turn of the decade.

There remain some sources of global upside. The European recovery reached a post-GFC high in
2017 driven by a resurgent Eurozone. Stimulative monetary policy, solid domestic demand and
job creation are supporting activity. German growth is set to stabilise at close to 2.5% this year,
while France also sees further gradual improvement. Elsewhere, Brexit provides a contrast for UK
fortunes, with growth falling well behind its neighbours. Although the UK’s slowdown has been
more modest than feared, activity is set to stall at a five-year low until 2020, with downside
potential if a cliff-edge Brexit looms.

Global Outlook, GDP Change, 2017-2019
                                   2017     2018         2019
Global                             3.6       3.9          3.6
Asia Pacific                       5.5       5.5          5.2
   Australia                       2.2       2.5          2.4
   China                           6.8       6.4          6.0
   India                           6.1       7.4          7.1
   Japan                           1.8       1.7          0.9
Americas                           2.0       2.6          2.2
   U.S.                            2.3       2.7          1.9
MENA                               2.0       3.2          3.8
Europe                             2.8       2.5          2.0
   France                          1.8       1.9          1.7
   Germany                         2.5       2.4          1.8
   UK                              1.5       1.5          1.6

Source: Oxford Economics, January 2018

Global Real Estate Health Monitor
             Economy        Real Estate Investment Markets                        Real Estate Occupier Markets

                   Metro          City     Investment   Capital
                   Area       Investment    Volumes      Value    Prime   Yield   Rental      Net       Vacancy   Supply
                   GDP         Volumes      Change      Change    Yield   Gap     Change   Absorption    Rate     Pipeline

Beijing              7.0%         3.6        -50%       0.9%      6.2%     231    -1.1%      4.4%        7.1%     19.9%

Boston               2.9%        10.5        10%        -4.1%     4.1%     169     0.8%      0.4%       13.6%      1.4%

Brussels             1.6%         2.1        -17%       15.2%     4.5%     386     9.1%      2.0%        8.2%      2.8%

Chicago              2.5%         8.1        -20%       1.0%      5.3%     289     7.1%      0.1%       16.6%      1.9%

Dubai                3.5%         0.9         8%        0.0%      7.5%     na      0.0%       na        10.0%      4.7%

Frankfurt            2.7%         5.5         1%        20.1%     3.3%     283     2.7%      1.1%        7.6%      3.8%

Hong Kong            2.8%        16.4        58%        23.6%     2.7%     93      5.6%      1.0%        5.1%      4.6%

London               1.6%        35.2        45%        0.0%      3.5%     227     0.0%      -0.4%       5.1%      6.3%

Los Angeles          2.8%        23.4         3%        3.0%      4.3%     189     3.0%      0.5%       15.0%      1.0%

Madrid               3.3%         4.3        10%        7.8%      3.8%     218     7.8%      -2.5%      10.9%      2.1%

Mexico City          2.8%         0.0        -96%       -0.5%     7.6%     -12     2.2%      4.8%       16.0%     14.0%

Milan                1.7%         3.7        15%        19.6%     3.8%     180     6.8%      0.4%       13.3%      2.6%

Moscow               2.0%         3.4         -2%       0.0%      10.0%    242     0.0%      3.1%       14.4%      4.9%

Mumbai               8.0%         0.0       -100%       2.5%      9.6%     210     1.5%      7.0%       16.8%     12.6%

New York             2.7%        27.8        -40%       1.4%      3.6%     119     4.3%      0.6%       10.1%      2.8%

Paris                1.8%        19.6        -13%       1.3%      3.0%     234     1.3%      0.9%        6.4%      4.4%

San Francisco        3.1%         5.2        -30%       -5.1%     3.8%     139     0.2%      0.1%        8.1%      7.4%

Sao Paulo            2.8%         1.1        37%        11.7%     9.3%     465     0.8%      2.3%       25.4%      6.8%

Seoul                2.1%        14.0         3%        -3.6%     4.4%     195    -3.6%      0.9%       11.7%      6.3%

Shanghai             6.6%        16.7        11%        0.5%      5.6%     173    -0.8%      13.3%      18.4%     25.6%

Singapore            2.9%        11.1        18%        11.2%     3.6%     155     9.2%      3.0%       10.8%      2.5%

Stockholm            3.3%         3.0        -28%       21.0%     3.5%     272    12.9%      0.6%        7.7%      2.4%

Sydney               2.4%         9.3        31%        20.6%     4.8%     212    26.0%      -0.1%       6.0%      3.1%

Tokyo                1.6%        23.3        20%        2.9%      2.9%     285     1.2%      2.0%        2.5%     12.7%

Toronto              2.4%         8.3        11%        7.0%      4.3%     224     7.0%      1.4%        8.7%      1.1%

Washington DC 2.4%               12.1        -31%       -2.8%     4.5%     209     1.7%      0.0%       17.0%      3.4%

Real estate data as at end Q4 2017.
See page 49 for definitions and sources.

Real Estate Capital Markets
Investment Volumes

Fourth quarter bounce lifts global investment volumes

Global real estate transaction volumes for the fourth quarter of 2017 came in at US$228 billion,
10% higher relative to the same period last year. This brings full-year volumes for 2017 to US$698
billion, 6% above last year’s total. While political uncertainty still looms, investors remained
confident in the performance of the real estate sector, reflected in Q4 2017 global investment
volumes surpassing the previous quarterly peak set in 2014.

Despite declines in the U.S., pockets of outperformance across Americas

Continuing the trend seen throughout 2017, fourth quarter volumes in the Americas are 15% lower
than we recorded in 2016, coming in at US$66 billion. Full-year activity is down 12%, with
investment levels dipping to US$249 billion. Once again the U.S. is the epicentre of this decline, as
full-year volumes fell 16% to US$224 billion, the lowest level since 2013. On the other hand,
Canada continues to be a bright spot in the region as 2017 volumes are up 29% to US$18 billion,
29% higher than the long-run average. In Latin America, Brazil outperformed after back-to-back
years of relatively slow activity; full-year volumes in 2017 are up 166% to US$4 billion.

The UK and Germany help Europe finish on a high note

Sustained investor appetite for European real estate led to a fourth quarter surge as volumes
jumped by 31% to US$110 billion. This concluded a strong year for the region with full-year
volumes up 22% to US$300 billion. Markets across much of Europe received a further boost as the
continued weakness of the U.S. dollar pushed up volumes in dollar terms. Driving this
performance was the UK, where annual volumes were up 37% in the year after the Brexit vote.
Robust fourth quarter activity in Germany combined with a vigorous start to the year brought full-
year volumes up 9%. Similarly, a very solid fourth quarter in France helped reverse the early year
slow-down and brought full-year volumes up 12%. In the Netherlands, a record breaking year saw
volumes reach US$21 billion, 44% higher than the previous peak in 2007. Markets in Southern
Europe also continue to perform well as Italy and Spain witnessed activity pick up by 17% and 23%
in 2017, while Greece and Portugal are up even more, posting annual gains of 56% and 66%

Record Q4 pushes Asia Pacific forward

For the second year in a row, the fourth quarter of 2017 set a new record for quarterly
transactional volumes in Asia Pacific as investment activity ticked up 16% from the record levels
set in the fourth quarter of 2016 to US$52 billion. This brings annual activity to US$149 billion, 13%
higher than 2016. Leading the way were the region’s two largest markets, China and Japan, where
annual volumes are up 5% and 10% respectively. Robust investor demand for property in Hong
Kong resulted in a strong Q4, which in turn brought full-year volumes to a record high of US$16

billion, 58% up on 2016. Growth in South Korea (10%), Australia (14%) and Singapore (18%)
rounded off the very solid year for the region.

Softer investment activity expected in 2018

The global ‘Goldilocks’ economy of 2017 produced a record year in the post-crisis era as markets
hit new highs around the globe. Broad-based growth, low interest rates and the lack of
inflationary pressure have created an ideal environment for investors. Even though central banks
across the developed world are looking to unwind asset purchase programmes, and interest rates
are beginning to slowly rise, forward guidance, strong fundamentals and positive market
sentiment have prevented any major dampening in global markets.

Real estate markets have seen much the same trends. The weight of capital seeking to enter the
sector is still significant despite being in an extended cycle. While yields in many global markets
are at record lows, healthy cash flow fundamentals have underpinned pricing. We expect global
investment volumes in 2018 to soften by 5%-10% to around US$650 billion. Although global
markets remain liquid, the relative lack of product combined with continued discipline are likely to
limit investment growth in 2018. Nevertheless, investors are still keen to access the sector and are
now looking to new strategies as the prominence of traditional single-asset transactions has
started to decline. Greater focus has been placed on debt financing, M&A, and alternative sectors
as the search for yield continues.

Direct Commercial Real Estate Investment, 2006-2018

                        2006     2007   2008    2009     2010   2011    2012   2013    2014     2015   2016   2017    2018 (F)
 US$ billions




                                        -15%                           -5%

                200                                                                                  ~0%


                            Americas                       EMEA                       Asia Pacific                   Global

                      xx%   Projected change 2017-2018

Source: JLL, January 2018

Direct Commercial Real Estate Investment – Regional Volumes, 2016-2017

                                                   % change                       % change                                      % change
 US$ billions       Q3 2017        Q4 2017       Q3 17-Q4 17      Q4 2016       Q4 16-Q4 17     FY 2016        FY 2017        FY 16-FY 17
 Americas                     61            66            7%               78           -15%            285             249          -12%
 EMEA                         73           110           51%               84           31%             245             300           22%
 Asia Pacific                 35            52           49%               45           16%             131             149           13%
 Total                       169           228           35%              207           10%             661             698            6%
Source: JLL, January 2018

Direct Commercial Real Estate Investment – Largest Markets, 2016-2017

                                                   % change                       % change                                      % change
 US$ billions       Q3 2017        Q4 2017       Q3 17-Q4 17    Q4 2016         Q4 16-Q4 17    FY 2016        FY 2017         FY 16-FY 17
U.S.                        54.7    59.8                   9%    72.8                  -18%     266.2         224.3                  -16%
UK                          20.9    27.3                  31%    15.1                   80%      57.9          79.1                   37%
Germany                     14.1    22.6                  61%    20.9                    8%      55.5          60.2                    9%
France                       6.7    16.3                 143%    10.1                   61%      28.9          32.5                   12%
China                        8.4    15.5                  85%    15.8                   -2%      34.6          36.3                    5%
Japan                        6.9    10.5                  52%     8.0                   31%      33.7          36.9                   10%
Hong Kong                    3.1     7.5                 140%     2.8                  171%      10.4          16.4                   58%
Australia                    6.8     7.2                   7%     5.2                   40%      18.7          21.4                   14%
Netherlands                  5.6     7.2                  28%     5.5                   31%      11.1          21.0                   89%
South Korea                  1.8     6.3                 252%     7.4                  -14%      16.0          17.5                   10%
Italy                        1.7     4.9                 186%     3.7                   32%      10.1          11.8                   17%
Spain                        2.2     4.2                  90%     3.3                   27%      10.5          12.9                   23%
Canada                       4.7     3.9                 -17%     3.2                   21%      14.1          18.2                   29%
Sweden                       1.2     3.9                 213%     4.8                  -19%      12.5          10.4                  -17%
Finland                      5.3     3.4                 -36%     1.7                  101%       4.9          10.6                  117%
Norway                       1.7     3.0                  75%     2.1                   42%       7.0           9.3                   33%
Source: JLL, January 2018

Regions in focus
Lower activity levels in U.S. set tone for the Americas

Sales transaction volumes across the Americas region continued to decelerate moderately in the
fourth quarter, with US$66 billion in closed deals during the period. This is down 15% from the last
quarter of 2016. For 2017 overall, total volumes reached US$249 billion, 12% lower than 2016
levels. These declines continue to be squarely driven by U.S. trends, where total activity for 2017
of US$224 billion represented a 16% fall on the previous year. For 2018, we anticipate a broad
continuation of the underlying factors behind these trends, with lower activity in the U.S. leading
to a regional Americas volume projected to be around 15% lower than in 2017.

Recapitalisations, larger portfolio and platform-level deals continue to be in demand from an array
of investors including, notably, foreign capital sources. Overseas investors remain keen on the U.S.
market, and it is at the top of many target market lists – in fact, foreign buyer market share in the
U.S. office sector for 2017 exceeded 17%, trailing just behind the highest percentage on record
established in 2016. Value-add continues to be the favoured investment strategy for raising and
deploying capital in the U.S., while there is an incremental shift underway towards debt strategies
as an alternate path to yield in the current yield-starved environment.

Outside of the U.S., the trend is generally toward stable or increasing transaction activity within
the Americas Region. In Canada, although total volumes declined moderately in the fourth quarter
from a year earlier to US$4 billion, the country enjoyed sturdy growth in volumes for 2017 overall.
Investment volumes exceeded US$18 billion for the year, an increase of 29% from 2016. In Brazil,
investor appetite for assets continues to grow as confidence about the economic recovery takes
hold. Q4 2017 marked the second consecutive quarter of total volumes reaching US$1.5 billion,
driving full-year 2017 activity to US$4 billion, more than doubling that in 2016. Finally, investment
volumes in Mexico were largely unchanged from the previous year in 2017 at US$2 billion.
Subsiding inflation in 2018, as well as recovery from temporary economic wobbles, bode well for
investment in the market this year; however, potential uncertainty around the mid-year general
election might be a source of caution.

EMEA transaction volumes exceed expectations

EMEA investment volumes came in at US$110 billion in Q4 2017, a 31% increase on the fourth
quarter of 2016. While part of this can be attributed to an appreciating exchange rate over the
course of the year, the growth in local currency terms (24%) was also significant. Over the full year,
volumes reached US$300 billion, an increase of 22% on 2016 and the strongest year since 2007.

Looking to the current year, sentiment across the region is likely to be supported by the favourable
economic backdrop in the Eurozone, although there remain challenges including ongoing political
uncertainties and Brexit negotiations moving into a critical phase. On balance, investors are
expected to be more cautious and volumes are likely to soften marginally on a strong 2017, with a
5% fall predicted.

The UK is in recovery mode following the Brexit-related slump in activity during 2016, with Q4 2017
investment volumes up 80% on the previous year to US$27 billion. Over the full year volumes
increased by 37% to US$79 billion, but were still below 2013-2015 annual totals.

Buoyant investment activity in Germany saw volumes at the end of 2017 rise 8% on Q4 2016.
Combined with the strong start to the year, full-year volumes rose to US$60 billion, a 9% increase.
Meanwhile, a lively fourth quarter in France helped reverse the slowdown in activity seen in Q2 and
Q3, with Q4 investment volumes up 61% year-on-year. This raised 2017 totals by 12% to US$32

Robust growth across European regions

Reflecting the region’s strong overall performance, investment activity increased in all European
regions during 2017. Volumes in the Benelux region (+ 57%), Southern Europe (+24%) and the
Nordics (+27%) all rose by double digits compared with 2016, while activity in Central and Eastern
Europe (CEE) rose 3% to US$19 billion, surpassing the previous cyclical peak in 2006 by 29%.

London reclaims top position in 2017

London reclaimed the top position as the world’s most traded city during 2017 as investment
activity rebounded by 35% from 2016 lows. A resurgence in foreign investment, which increased
by 67%, meant London also headed the rankings as the largest recipient of cross-border capital for
the year. Los Angeles registered its strongest year on record to displace New York, where
transactional activity fell by 48%, and climb into second place. In Europe, Berlin posted its best
year on record to enter the Global Top 20, as volumes doubled from 2016 levels. All six Asia Pacific
markets represented in the Top 20 witnessed an increase in activity, with Shanghai and Hong Kong
also setting new annual records as volumes climbed by 11% and 58% respectively.

Direct Commercial Real Estate Investment, Top 20 Cities, 2017
    Los Angeles
        New York
     Hong Kong
 Washington, DC
   Silicon Valley
           Dallas                                                                            Americas
                                                                                           Asia Pacific
         Houston                                                                            US$ billions

                     0      5       10          15           20          25          30               35

Source: JLL, January 2018

Investment volumes reach new record in Asia Pacific

Investment activity across the Asia Pacific region surprised on the upside in the final quarter of
2017, reaching a new record at US$52 billion, up 16% on the same quarter of 2016. As a result, full-
year transaction volumes also set a new high, coming in at US$149 billion, up 13% on the previous

Cross-border investment activity lifted again in Q4, accounting for 40% of total transaction
volumes. Cross-border investors remained net purchasers during the quarter, with Singaporeans
the largest cross-border buyers in the region, representing US$3 billion worth of deals.

Foreign investors active in Japan

Transaction volumes in Japan totalled US$37 billion in 2017, up by 10% year-on-year. Foreign
investors were very active in the market, with the notable entry of Norges Bank Investment
Management making their first foray in the Asia Pacific region. Investor interest in other regional
cities continues to build, with a particular focus on Osaka and Fukuoka.

Investor interest in Australia moving beyond Sydney and Melbourne

Investment volumes in Australia came in at US$21 billion in 2017, up 14% on 2016. Capital
continues to focus on the upper prime end of the market; however, there is limited opportunity
to deploy in this segment of the market, leaving a lot of unsatisfied capital. Interest has been
shifting towards secondary cities such as Brisbane.

Another record year for Greater China

Transaction volumes during 2017 in China reached US$36 billion, up 5% on the year and marking a
new all-time record. Despite the increase in transaction volumes, most sectors saw year-on-year
declines with total volumes propped up by the Q3 sale of Wanda’s portfolio of 76 hotels for around
US$3 billion. Deal flow continues to be concentrated in Shanghai, which accounted for nearly 60%
of transaction volumes in mainland China.

Investment volumes in Hong Kong established a new record in Q4 2017, coming in at US$7.5 billion
and up 171% year-on-year. Full-year volumes totalled US$16.4 billion, up an impressive 58% on
2016. Pricing across the market continues to show upward momentum despite the already heated

Direct Commercial Real Estate Investment – Quarterly Trends, 2007-2017
 US$ billions

                240                                                                                                                                                                                                                            228                                                                                     228
                                                                                                                                                                                                                   211                                                      210                           207
                210          205 204
                                                                                                                                                                                                                                        174                         171
                180                                                                                                                                                                                                                                                                               166                          169
                                                                                                                                                                                       163                                       162                         168
                                           159                                                                                                                                                                                                        155                                                               158
                                                                                                                                                                                                            146                                                                                                  143
                150                                                                                                                                                                                                       143                                                      136
                                                  120 118                                                                                                  119
                120                                                                                                            113           110 107                     110                  108
                                                                100                                                                   100
                                                                                            66 66 66
                                                                       41 43


                                                                                Americas                                       EMEA                               Asia Pacific                                     Rolling Four-Quarter Average

Source: JLL, January 2018

Capital Values and Yields
Income growth supports capital appreciation

Income growth on prime assets across 26 major office markets underpinned capital appreciation
of 6.0% in 2017. Capital growth for prime office assets in 2018 is expected to slow to around 3%-

Eight of the 26 major office markets have recorded double-digit capital value growth over the past
year, as a result of steady income growth and further yield compression. Hong Kong (+24%),
Stockholm (+21%), Sydney (+21%) and Frankfurt (+20%) topped the table of capital appreciation
in 2017. This year should see Moscow and Sao Paulo record strongest capital growth, as they
move into a recovery phase.

Continental Europe drives further yield compression

Prime office yields were virtually unchanged in the majority of major office markets in the final
quarter of 2017, with only Sao Paulo (-25 bps) and Sydney (-12 bps) showing notable compression.
In Europe, however, office yields continue to compress, with the mean prime office yield falling
below 4% for the first time since our records began. The largest inward movement was recorded in
Germany, with Berlin’s prime office yield now standing at 2.9%.

Prime Office Yield Shift, Q4 2016–Q4 2017

                      Brussels                                                   Q3 2017 - Q4 2017
                                                                                 Q4 2016 - Q3 2017



                  Los Angeles
                     New York
                 San Francisco
                Washington DC
                     Sao Paulo
                   Mexico City

 Asia Pacific

                   Hong Kong
                        Tokyo                                                     Basis point change

                             -100   -80   -60   -40        -20         0          20             40

Source: JLL, January 2018

Prime Offices - Projected Change in Values, 2018

                          Rental Values                                                Capital Values

        10 - 20%          Singapore                                                    Moscow, Sao Paulo

                         Sydney, Toronto
        5 - 10%                                                                       Hong Kong, Sydney, Toronto, Madrid
                         Sao Paulo, Moscow, Madrid

                         Hong Kong, Brussels, Stockholm, Frankfurt                     Singapore, Brussels, Frankfurt, Dubai
                         Dubai, Boston, Chicago, Los Angeles                           Boston, Chicago, Los Angeles, New York
        0 - 5%           New York, San Francisco, Washington DC                        San Francisco, Washington DC, Milan, Paris
                         Milan, Seoul, Paris, Mumbai, London, Tokyo                    Mumbai, Shanghai, Stockholm, London, Tokyo

        0 - 5%           Shanghai, Mexico City, Beijing                               Beijing, Mexico City, Seoul

New York – Midtown, London – West End, Paris – CBD, Dubai – DIFC. Nominal rates in local currency.
Source: JLL, January 2018

Prime Offices – Capital Value Change, Q4 2016–Q4 2017

                          Hong Kong
                           Sao Paulo
                         Los Angeles
                           New York
                                            Mexico City                                                                  Americas
                                            Washington DC                                                                    EMEA
                                            Seoul                                                                      Asia Pacific
                                            San Francisco                                                                  % change

                -5                      0                   5            10                 15                 20                25

Notional capital values based on rents and yields for Grade A space in CBD or equivalent. In local currency.
Source: JLL, January 2018

Corporate Occupiers
Global corporate occupier activity remained at a high level in the final quarter of 2017. Flex space
providers accounted for about one-fifth of activity in London alone, while broad-based demand
from corporates in the financial and technology sectors and the co-working industry underpinned
activity in the U.S and Asia Pacific.

Corporate sentiment is improving as global economic growth creates expansion opportunities in
both developed and emerging markets. Robust levels of occupier activity are expected to continue
in 2018.

Co-working and shared office space on the rise globally

The burgeoning flex space and co-working market is transforming real estate across the world and
is fast becoming an important part of wider corporate real estate (CRE) and portfolio strategies.
SMEs, mobile and contingent workforces remain the backbone of flexible space operations,
although medium and large companies have also begun to realise the potential of leveraging
flexible space arrangements to better manage their liquid workforces, which is evident through
some large-block corporate leasing.

Shared workspaces have grown at an incredible rate of 200% over the past five years. In global
cities like London, New York and Chicago they are expanding at an annual rate of 20%, making co-
working an institutional part of the market. Increasing interest and a lot of aggressive growth from
a number of the key providers is translating into investment, JV and acquisition activity from real
estate investment players.

Demand for flex space is projected to grow as corporates and large enterprises are looking more
and more to enlarge the flexible proportion of their portfolios to benefit from a range of the
advantages that such flexibility can bring. A rising share of enterprise users is likely to continue to
underpin the demand for flexible space over 2018 and beyond.

Talent and technology continue to drive CRE strategies

Competition for top talent has sparked renewed interest in firms’ location decisions, as many of
the world’s largest technology and financial companies review their expansion strategies in a
search for affordable but high-quality and educated talent. Companies are also leveraging
workplaces as a key differentiator to attract and retain top talent. Our research shows that
increasingly mobile and tech-enabled employees are demanding greater choice on when and
where they work. In response, corporates are introducing a range of innovative workspaces and
offering more choices to improve employee performance and quality of life.

Smart buildings is another other area of focus within corporate real estate. A variety of companies
and developers are now innovating and exploring the impact of digitisation on buildings,
portfolios and workplaces. This rapidly evolving trend is driving closer alignment between real
estate and technology functions, as they work together to drive performance outcomes for firms
and to enhance the employee experience.

Global Office Market Conditions Matrix*, 2018-2020

                    2018     2019 2020                            2018     2019     2020                           2018    2019 2020
  Chicago                                       Brussels                                       Beijing

  Los Angeles                                   Frankfurt                                      Hong Kong

  New York                                      London                                         Mumbai
                                                (West End)

  San Francisco                                 Madrid                                         Shanghai

  Toronto                                       Moscow                                         Singapore
                                                                                               (CBD Overall)

  Washington DC                                 Paris                                          Sydney

  Mexico City                                   Stockholm                                      Tokyo
                                                                                               (CBD 5-kus)

                                                                                                  Tenant Favourable
  Sao Paulo                                     Dubai
                                                                                                  Neutral Market
                                                                                                  Landlord Favourable

*Relates to conditions in the overall office market of a city. Conditions for prime CBD space may differ from the above.
Source: JLL, January 2018

Office Markets
Office Demand Dynamics

Global leasing volumes at highest level for a decade

The global office leasing markets finished the year on a high note, with 11 million square metres
leased in the final quarter of 2017 across 96 markets, the largest quarterly volume since 2007. For
the full-year 2017, gross leasing volumes reached 40.7 million square metres, a healthy 4% higher
than 2016 and at the top end of our forecast range:
      Europe was the outstanding leasing market performer in 2017, with levels up an
       impressive 10%, far stronger than expected;
      Leasing volumes in the U.S. were exactly on forecast, up by 3% on 2016 levels;

      Asia Pacific also exactly matched projections, falling as predicted by 5% from the
       exceptional levels of 2016.

2018 is set to be another good year, and we have revised our volume forecasts upwards to close to
40 million square metres. Yet due to the exceptional 2017 result, this translates into a modest 3%
fall year-on-year, with volumes unlikely to hit last year’s impressive tally.

European leasing volumes hit record levels in Q4 2017

European office take-up rose to 4.0 million square metres in Q4 2017, the highest quarterly leasing
volume on record. Robust activity in the final quarter pushed 2017 take-up to 13.3 million square
metres, up 10% on 2016 and the highest level since the previous peak of the market in 2007. In
particular, Paris and the ‘Big 5’ German markets outperformed, while London also continued to
see strong take-up levels:

      London’s take-up for the full-year 2017 was up 9%, representing a robust year for leasing
       activity and outperforming expectations. Flexible-space operators continue to be a major
       contributor to activity, with the sector accounting for around 20% of London’s take-up.

      The strong sentiment recorded in Paris over the last 18 months translated into a 20% year-
       on-year increase and the best year-end on record.

      In Germany, the ‘Big 5’ office markets showed no signs of weakening, with Q4 take-up
       rising by 38% year-on-year. Frankfurt registered its strongest quarter on record,
       highlighting the strengthening sentiment across the wider market.

      Central and Eastern Europe also recorded an active Q4, with volumes up one-third on a
       year ago. Moscow, Prague and Warsaw all experienced significant growth in leasing
       activity in Q4.

      Spain also deserves highlighting, where volumes were up 31% in 2017. Madrid witnessed a
       particularly strong recent uplift, with Q4 leasing levels 74% higher year-on-year.

Demand across Europe continues to strengthen, and we have therefore increased our full-year
2018 take-up forecast to 12.3 million square metres (slightly down on a robust 2017, but 11%
ahead of the 10-year average).

U.S. tenants have increasing choice in 2018

Fundamentals remain positive in the United States and organic growth continues as the economy
powers on, with leasing volumes up 3% for the full-year 2017. There has been a slowdown in net
absorption however, driven by a combination of reduced expansionary activity among large users,
movement into new space and ‘give-backs’ of commodity blocks faster than the market can

Among the U.S.’s larger office markets, Houston saw the greatest improvement in gross leasing
volumes in 2007, but it is several secondary cities that are registering the fastest growth – notably
Nashville, Minneapolis, Indianapolis and Phoenix.

2018 will see continued growth for the U.S. office market, even though net absorption will stay at
its newer and slower pace. Leasing activity has yet to show a sign of slowing and economic growth
should again be solid. This will keep demand for space buoyant, while more balanced conditions
will ease the cost and space burdens on tenants.

Over the border, Canada saw its best year for occupancy growth since 2012, reflecting the robust
performance of the Canadian economy. Businesses continue to expand in Vancouver, Toronto and

New leasing slows in Asia Pacific

Overall leasing activity in Asia Pacific dropped 26% year-on-year in Q4, contributing to a full-year
decline of 5%, in part due to low vacancy and high pre-commitment rates for quality buildings in
several key markets. Most Asia Pacific cities experienced healthy broad-based occupational
demand driven largely by financial and technology firms:

       Gross leasing for the China Tier 1 cities was up 17% in 2017. Leasing volumes in Shanghai
        were bolstered by demand from co-working operators, while new supply in Beijing’s core
        areas allowed pent-up demand to be released which pushed new leasing higher.

       In Japan, gross leasing activity remained robust, rising a healthy 8% in 2017 with improved
        market sentiment amid optimism about the economy. Pre-leasing activity maintained its
        vigorous pace and bolstered leasing volumes.

       Gross leasing for the India Tier 1 cities dropped by 10% in 2007. High occupancy, strong
        commitments to high-quality properties and a slight softening of demand from the
        technology sector (following job automation and cost-related consolidations) impacted
        new leasing activity. Even so, Delhi and Bengaluru registered the highest leasing volumes
        in the Asia Pacific region during 2017.

       In Australia, gross leasing volumes declined 25% in 2017, but from a high base in 2016.
        Demand stayed healthy in Sydney, but leasing activity is constrained by low vacancy and
        low deliveries of new space. In Melbourne, most large deals were concentrated in
        upcoming developments.

With a positive outlook for regional and global economies in 2018, we are optimistic that leasing
activity will hold up relatively well and remain within reach of 2017’s level. The performance
among markets will continue to be mixed, and ‘new tech’ firms (e.g. e-commerce, co-working)
should be key sources of demand growth as their business expands.

Global Office Demand – Annual Gross Leasing Volumes, 2007-2018

 millions sq m





                      2007   2008   2009     2010       2011      2012     2013   2014   2015   2016 2017   2018

24 markets in Europe; 50 markets in the U.S.; 22 markets in Asia Pacific
Source: JLL, January 2018

Office Supply Trends

Global office vacancy rate falls, defying expectations

Office leasing markets finished the year a lot tighter than predicted, with the global office vacancy
rate defying expectations by falling marginally to 11.9% in Q4 2017, testimony to the capacity of
the market to absorb additional space.

Most of the vacancy rate decline was due to the continued falls in Europe, where vacancy dropped
further to 7.4% in Q4. Vacancy rates in the fourth quarter kept broadly flat in the Americas (at
14.9%) and Asia Pacific (at 11.1%).

Nonetheless, with the delivery of new offices expected at a relatively elevated level during 2018,
vacancy is projected to edge up in 2018 to around 12.2%.

Peak in global development cycle hides regional differences

Delays in new deliveries have pushed the peak of the global office development cycle into 2018 – at
17.5 million square metres (compared to over 19 million square metres at the peak of the last cycle
in 2008). There remain differences in the timing of development cycles between the three global

       U.S. development peaked last year, with new completions expected to decline
        progressively between 2018 and 2020.

       In Asia Pacific, peak development is likely to be this year, with high levels of completions
        forecast in Shanghai, Beijing, Tokyo, Jakarta, Manila and India’s Tier 1 cities.

       In Europe, development is now gearing up, with deliveries peaking in 2019 and 2020.

European office vacancy decreases further

Robust leasing activity continues to erode available space, with the European office vacancy rate
decreasing to 7.4% in the final quarter. This fall was particularly strong in Amsterdam, Warsaw,
Budapest and Berlin.

In 2018 we expect vacancy to stabilise as the pipeline grows further this year and next. The
development pipeline is likely to be more significant this year, with most of the increase
concentrated in London, Paris, Dublin, Berlin and Munich. However, completions of 5 million and
6.5 million square metres in 2018 and 2019 respectively are still well below the levels in excess of 7
million square metres recorded annually in 2008 and 2009.

Both quality and cost-effective space options increase in the United States

As a result of new construction outstripping absorption, vacancy in the U.S. has increased to 15.0%
and is set to grow even more in 2018 and 2019 as deliveries intensify. ‘Flight to quality’ is
accelerating the rise in vacancy in Class A space, although it remains tighter than that of Class B
vacancy. Developers are taking note of this upward trend in vacancy and have scaled back on
construction starts. In 2017, starts dropped sharply by 29% to 42.9 million square feet, ultimately

leading to construction activity falling below the 100 million square foot mark for the first time
since 2015.

Canadian markets tighten

Canada’s Downtown Class A vacancy dropped an impressive 380 bps during 2017 to 10.9%; if
Calgary is removed, the vacancy rate is only 5.8%. Vacancies in Toronto and Vancouver have been
in virtual free-fall for several quarters, although vacancy is likely to see less movement in 2018.

Robust demand counters surging supply in Mexico

The historic wave of new supply landing in the Mexico City office market resulted in a 9% growth in
the office stock in 2017 alone, which explains the currently elevated 16% vacancy rate. That rate
was stable over the course of Q4 however, as tenant demand was also strong. 2018 will see
supply-side challenges continue and the vacancy rate is likely to drift upwards.

Major improvement on offer in Brazil

Brazil’s turning economic fortunes will rather quickly translate into markedly improving conditions
in its office market. In Sao Paulo, the vacancy rate has peaked at 25%. As a further boost, new
deliveries will be on the decline during 2018, and by year-end the pipeline should be low

Large supply volumes offer tenants options in growth markets

China and most Southeast Asian markets saw more new buildings enter the market while the
Australian cities recorded very limited or no new supply. Over 1.5 million square metres of new
supply entered the Shanghai market in 2017. Huge volumes of supply have come online in Jakarta
since early 2015 and 2017 volumes were at a record high.

Vacancy rates continued to decline in the majority of Asia Pacific markets during Q4, with those in
Taipei, Brisbane and Singapore having dropped the most. With a healthy level of new supply
projected in 2018, regional vacancy is anticipated to edge up, led by higher rates in markets such
as Hanoi and Jakarta, which are expecting new waves of supply.

Global Office Completions, 2000-2020

                 20                                         U.S.    Europe       Asia Pacific
 millions sq m

                 15                          Average



                      2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
                                                                                                                 (F) (F) (F)

24 markets in Europe; 25 markets in Asia Pacific; 50 markets in the U.S. Asia relates to Grade A only.
Source: JLL, January 2018

Office Supply Pipeline – Major Markets, 2018-2019
   Mexico City
 San Francisco
     Sao Paulo
   Hong Kong
Washington DC
     New York
        Boston                                                                                           2018   2019
                                                                                Completions as % of existing stock
  Los Angeles
                           0             5             10           15              20               25            30

Covers all office submarkets in each city. Tokyo – CBD - 5 kus
Source: JLL, January 2018

Office Vacancy Rates in Major Markets, Q4 2017

 30%                                                                                                                                                                                                                                                                                                                                                                                                               Quarterly movement
                                                                         Americas                                                                                                                       Europe                                                                                                            Asia Pacific                                                                                Increased

 25%                                                                       14.9%                                                                                                                           7.4%                                                                                                                11.1%                                                                                  Decreased







                         San Francisco

                                                         New York

                                                                                                       Mexico City



                                                                                                                                                                                                                                                                                                              Hong Kong



                                                                                     Los Angeles

                                                                                                                                                          Sao Paulo




                                                                                                                                      Washington DC



Regional vacancy rates based on 62 markets in the Americas, 24 markets in Europe and 25 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, January 2018

Global and Regional Office Vacancy Rates, 2009-2017

 Vacancy Rate (%)



                    15                                          14.4%                                                                                                                                                                                                                                                                                                                                          14.9% Americas

                                         11.9%                                                                                                                                                                                                                                                                                                                                                                 11.9% GLOBAL
                                                                                                                                                                                                                                                                                                                                                                                                               11.1% Asia Pacific


                                                                                                                                                                                                                                                                                                                                                                                                              7.4%    Europe
                            Q4 2009
                                         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
                                                                                                                                                                                                                                                                Q3 2014
                                                                                                                                                                                                                                                                          Q4 2014
                                                                                                                                                                                                                                                                                    Q1 2015
                                                                                                                                                                                                                                                                                              Q2 2015
                                                                                                                                                                                                                                                                                                        Q3 2015
                                                                                                                                                                                                                                                                                                                    Q4 2015
                                                                                                                                                                                                                                                                                                                               Q1 2016
                                                                                                                                                                                                                                                                                                                                         Q2 2016
                                                                                                                                                                                                                                                                                                                                                    Q3 2016
                                                                                                                                                                                                                                                                                                                                                                Q4 2016
                                                                                                                                                                                                                                                                                                                                                                           Q1 2017
                                                                                                                                                                                                                                                                                                                                                                                     Q2 2017
                                                                                                                                                                                                                                                                                                                                                                                               Q3 2017
                                                                                                                                                                                                                                                                                                                                                                                                         Q4 2017

62 markets in the Americas; 24 markets in Europe; 25 markets in Asia Pacific. All grades except Asia and Latin America (Grade A only).
Source: JLL, January 2018

Office Rental Trends

Prime rental growth hits 4%, strongest since 2011

Rents for prime offices across 26 major markets grew by 4.1% for the full-year 2017, double our
expectations at the beginning of the year and the highest rate since 2011:

      Strong double-digit uplift was recorded in 2017 in Sydney (+26%), with Stockholm (+13%)
       following in second place globally;

      Only three major office markets (Shanghai, Beijing and Seoul) registered a decline in prime
       rents during 2017, all falling modestly by less than 5%;

      2017 was marked by the return of rental growth in Singapore (+9%) and Sao Paulo (+1%)
       after several quarters of rental corrections.

More of the same is forecast for 2018, with growth projected to average 3% and top performances
going to Singapore and Sydney. Only Shanghai, Mexico City and Beijing are slated for rental
corrections over the coming year.

Strength of Europe’s occupier markets supports robust rental growth

The European Office Rental Index increased by 4.1% during 2017, the strongest annual rate of
growth since 2010. Excluding the UK, Western European rental growth reached 5.4% year-on-year,
underlining the strength of the occupier market:

      Germany continues to lead Europe in terms of rental growth, with Berlin (+3.4%),
       Dusseldorf (+1.9%), Hamburg (+1.9%), Munich (+1.4%) and Frankfurt (+1.3%) all seeing
       quarterly increases as a result of tightening supply and elevated demand. In the
       Netherlands, Amsterdam also witnessed another quarter of rental growth.

      In London, prime rents held firm in Q4 2017 as the occupier market continues to stabilise,
       while in Paris, prime rents increased by 4.0% in the quarter with the recent positive market
       sentiment continuing.

      In Southern Europe, prime rents in Milan, Madrid and Barcelona continued to rise on the
       back of tight Grade A supply and solid demand.

At 2.3%, projections for prime office rental growth across Europe in 2018 should comfortably
outpace the five-year average (1.4%). However, there is potential for outperformance in Western
Europe’s tightest markets.

New premium-priced spaces are helping to boost U.S. asking rents

The injection of new supply in the U.S. is providing landlords with a short-term bump in asking
rents. New supply averages US$56 per square foot, a 43% premium compared to existing Class A

space; this has contributed to a 3.8% increase in asking rents over the year, 60 bps greater than the
market as a whole.

Growth has been highest for quality space in the suburbs, where greater volumes of new, non-pre-
leased supply are coming online. Landlords are taking advantage of the faster ‘flight to quality’ in
suburban geographies to push rents higher.

Rental growth in Asia Pacific maintains pace

For the full-year 2017, Asia Pacific rents increased by 3.6%, the strongest of the three global regions:

       Sydney remained the regional leader for annual growth, with incentives continuing to

       Singapore recorded the strongest quarterly rental growth on the back of improved
        occupancy levels, as landlords of quality buildings increased rents and some scaled back

       Mixed rental trends were evident in Beijing with supply putting pressure on CBD rents,
        while robust demand in the Finance Street submarket sustained its rental growth.
        Shanghai CBD rents edged lower again, while the ‘Decentralised’ market saw rents rise.

       Quarterly rental growth was limited in Tokyo as landlords kept focused on securing
        tenants ahead of a supply wave.

       Sustained demand from mainland Chinese firms against a tight vacancy environment
        supported a further uplift in Hong Kong Central rents.

Prime Offices – Rental Change, Q4 2016-Q4 2017

                                   Hong Kong
                                     New York
                                  Los Angeles
                                   Mexico City
                                Washington DC
                                     Sao Paulo
                                 San Francisco
                                       Moscow                                                                    Americas
                                                                                                               Asia Pacific
                                                      Seoul                                                      % change
                                -5                0               5          10          15      20       25             30

Based on rents for Grade A space in CBD or equivalent. In local currency.
Source: JLL, January 2018

Prime Offices – Rental Change, 2010-2018

                                8.0%       8.0%
 Rental change (y-o-y %)


                                                                                          4.0%          4.1%
                            4                                                     3.6%
                                                                                                 2.9%             3.0%

                            2                              1.8%

                                2010       2011            2012       2013        2014    2015   2016   2017     2018F

Prime office rental growth: unweighted average of 26 major markets.
Source: JLL, January 2018

Prime Offices – Rental Clock, Q4 2017
                    Beijing, Chicago, New York
                           Paris, San Francisco                                          Washington DC
                             Tokyo, Hong Kong
                                  Boston, Dallas
                                   Los Angeles
                            Stockholm, Prague
                                                     Rental Growth       Rental Values
                                         Berlin            Slowing       Falling

           Amsterdam, Madrid, Sydney, Toronto
                                          Milan      Rental Growth       Rental Values
                                                      Accelerating       Bottoming Out
                                     Singapore                                           Istanbul, Mexico City

                                                                                         Sao Paulo
                                       Mumbai                                            Moscow, Johannesburg, Warsaw, Zurich

                                                         Americas EMEA Asia Pacific

Based on rents for Grade A space in CBD or equivalent.
U.S. positions relate to the overall market.
Source: JLL, January 2018

Retail Markets
U.S. retail market expansion slowing amid rapid structural change

The U.S. retail story in the fourth quarter remains largely consistent with the broader trends of
2017. Retail construction continues to slow, rents are still rising but at a slower rate than in
previous quarters, and vacancy continues to be low at 4.3%. Developers are conservative on new
retail construction, in line with the mall renovation pattern of converting traditional retail spaces
into non-retail uses, with owners investing to create mixed-use destinations for the evolving
shopper including adding residential units, office and hotel space, entertainment, and community
and open spaces.

Retail closures continue to make headlines, but the market could breathe a bit easier as 2017
closed with the holiday season seeing a 4.9% growth in sales. 2018 will most likely experience
more closure announcements as struggling retailers continue to lose footing, but at a slower pace
than in 2017. However, a significant number of openings have been announced for the year and
should help keep vacancy lower than might be expected considering this year’s slew of closures
and bankruptcies.

Consumer confidence in Europe at historically high levels

Strong confidence and job creation continue to drive consumer spending across Europe, with
retail sales in the EU28 increasing by 2.8% in 2017. While there is a slight deceleration in prospect,
EU retail sales are forecast to grow by 2.3% this year and by 2.0% in 2019.

E-commerce growth, the rise of technology and changing consumer spending patterns continue to
shape European retail demand. As a result, retailers are adapting and re-evaluating their existing
physical space. There has been a notable acceleration in initiatives addressing this evolving retail
environment; responsive retail, new business models and omni-channel will continue to thrive in
this context.

Prime high street rents were broadly stable during Q4, while shopping centres and retail
warehouses experienced more variation. High street rents rose most in Birmingham (+7.5%
quarter-on-quarter) and Leeds (+4.0%), while shopping centre prime rents saw the largest increase
in Ukraine (+11.1%) and the Czech Republic (4.2%). Germany’s shopping centres witnessed the
widest variation in rental growth, ranging from a 16.7% rise in Stuttgart to an 8.0% decline in
Berlin over the quarter.

A focus on asset enhancement initiatives and tenant-mix adjustments in Asia Pacific

Many retail landlords in Asia Pacific continued to adjust tenant mixes in Q4 2017. In Sydney,
retailers are opening new concept stores that offer greater customer engagement and experience.
Mass market fashion brands were among the most active retailers in Beijing and Shanghai, while
leasing activity in Hong Kong was dominated by renewals and cost-saving initiatives.

In general, stagnant rents were evident across Asia Pacific. Sydney and Melbourne recorded rental
growth on renewals, but discounts were offered to replacements with landlords focused on tenant
retention. Hong Kong’s prime shopping centre rents held firm and several malls recorded positive
sales growth, while in Singapore the pace of rental declines in the Marina submarket tapered.

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