Investment volumes up 35-40% in 2011   Investors will continue to have sound reasons for targeting commercial property over the next 12 months - its perceived hedge against inflation; supply shortages in many gateway markets; appealing risk-adjusted returns when compared to more volatile asset classes; still-attractive pricing outside some of the prime markets which corrected earliest; and even a pick-up in both debt issuance and securitisation. Based on current momentum and transactions in the pipeline, and barring any major downside shocks, we believe that full-year 2011 global investment volumes will exceed US$440 billion. This will be the highest total since 2007’s US$795 billion and will put the global market on a par with levels seen in 2004 and 2005. Direct Commercial Real Estate Investment, 2005-2011 Source: Jones Lang LaSalle, April 2011 The rise of the BRICS   The balance of activity has shifted, with less investment in developed countries’ secondary and tertiary markets and a big increase in emerging markets.  Looking further ahead, we expect investment volumes to gradually return to the US$700-800 billion levels of the last peak in 2006/2007. However, the change in the composition of investment will persist, with BRICS and other emerging markets expected to account for a much larger proportion of activity, both as a source and a destination of capital. The contribution of the BRICS markets to global investment volumes has steadily increased from less than 2% in 2007 to 13% in Q1 2011, and further rises are anticipated as the markets become more transparent and the quality of their building stock improves. South Africa, which formally joined the BRICS group in April 2011, is also likely to see increasing cross-border real estate investment, offering an attractive combination of first-world real estate infrastructure and emerging market dynamics. Asia Pacific volumes up 15-20%   In the Asia Pacific region, investment volumes are projected to top US$100 billion in 2011, a 15-20% increase on 2010. However, the anticipated fall in investment volumes in Q2 and Q3 in Japan, which typically account for around 30% of the regional total, could negatively impact on overall volumes.  Domestic sources of capital will continue to account for the bulk of regional investment.  More club deals and other forms of funding (mezzanine capital, bond issuance) are expected in markets where policy risks are more inherent or domestic bank funding is restricted (e.g. China). In Australia, while banks continue to reduce their exposure to commercial real estate and the steady tightening in yields poses a hurdle to aspiring A-REIT investors, other sources of capital are becoming available. New sources of non-bank debt finance are emerging and unlisted wholesale funds, with longer time horizons, are actively seeking new opportunities. Significant equity targeting Europe   With large amounts of equity targeting European real estate, we believe that there is potential for investment volumes to increase by up to 30% on 2010 levels, although a lack of suitable opportunities may constrain activity. The major markets of the UK, Germany and France will continue to dominate activity. London, which was the world’s largest city market in commercial property investment in 2010, looks set to lead again in 2011. A very broad range of overseas investors are targeting the city, particularly from Asia Pacific. The key difference between this year and last is that Asia Pacific investors will be keen to explore development, short income and riskier cash-flows, as well as long income vanilla transactions. The supply of investment stock is likely to increase, with banks in a better position to action problem loans. Ireland’s NAMA is likely to step up sales of UK property. Shortages of core assets and limited yield compression in the main markets will encourage a broadening of investor horizons. We expect to see growth in investment activity in the Nordics, Poland (which many now consider ‘core Europe’), and also Russia, where investors are attracted by opportunities for rental growth and relatively high yields.  Momentum builds in the Americas    Considerable momentum is building in the US investment market, and Q2 appears to be heading for a further increase in activity over Q1. Listings are on the increase and deals ‘under contract’ are up significantly, currently at their highest level since the recovery began. With the cyclical market recovery gaining traction in the US and Canada, and strong secular growth continuing in Latin America – most notably in Brazil – we anticipate total regional investment volumes for 2011 to be in the region of US$155 billion, representing an increase of 60% over 2010 levels.   Capital appreciation driven by rental growth    Continued strong capital appreciation is expected to be a feature of most top-tier office markets for the remainder of 2011 (Tokyo being a notable exception) as rental growth accelerates on prime office assets. Hong Kong, Moscow, Washington DC and San Francisco are projected to show the strongest capital value growth during the year. Following the steep re-pricing of assets in major markets since 2009, yields will stabilise in most core markets, though we could still see some yield compression for prime assets in ‘secondary’ and smaller markets (e.g. CEE, Tier II US cities).  In core markets further capital appreciation will be driven by rental growth. Prime Offices – Projected Change in Values, 2011

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Global Market Perspective - global real estate outlook