KPMG Real Estate

Invest Survey −
An outlook for 2014

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 Impressum
Designed by Evalueserve
Publication name: KPMG Real Estate Invest Survey
Publication Date: March 2014
kpmgpublications@kpmg.com

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Content
Overview.......................................................................................................................................................................... 4

About the survey............................................................................................................................................................... 4

A Questions

1) Are you pursuing a global, regional or

domestic investment strategy?................................................................................................................................. 5

2) Which regions/markets offer the best opportunities today?....................................................................................... 5

3) Name four countries that offer the best real estate

investment opportunity today ................................................................................................................................... 6

4) Which of the following strategies offer the

best investment opportunity?.................................................................................................................................... 6

5) What parts of the real estate market are you targeting?............................................................................................ 7

6) What property types are you most interested in?...................................................................................................... 7

7) Are you planning to increase your real estate

exposure in the next 12 months?.............................................................................................................................. 7

8) Are you investing in real estate as part of

a wider real assets strategy?..................................................................................................................................... 7

9) Are you investing in real estate debt?........................................................................................................................ 8

10) Where does real estate debt fit into a multi-asset portfolio?...................................................................................... 8

11) Where are the best debt investment opportunities?................................................................................................. 8

12) Will debt strategies become a much more significant

part of institutional real estate portfolios in the future?.............................................................................................. 9

13) Which of the following structures

do you employ for real estate investments?.............................................................................................................. 9

B Hypotheses

14) Europe as a major investment hub...........................................................................................................................10

15) Shift in the European real estate market...................................................................................................................11

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Overview

The global real estate market showed signs of resurgence over 2012–13, aided by slowly, yet surely, improving
economic conditions and enhanced liquidity. What is the outlook for 2014? KPMG RE-Invest Survey 2014 shows that
investment in real estate is on the upswing. Real estate may well be on its way to emerging as a stand-alone major
asset class in a diversified portfolio, as investors are now seeking to reduce their exposure to traditional portfolios
comprising of only bonds and equities.

We highlight here a few of the key trends revealed by the survey:

• In line with the results of last year’s survey, investors are optimistic about increasing their exposure to real estate,
with 81% respondents sharing plans in support of real estate investment. This trend will be supported by improved
economic stability and debt availability, encouraged by an improving capital market. In corroboration, 90%
respondents agree that the European core markets will remain investment hot-spots over the next five years, aided
by debt availability and the emergence of sovereign wealth funds and globally-operating pension funds.

• Investors are now more willing to capitalize on undervalued or distressed assets, as confidence returns to the global
economy. A total of 42% respondents are focusing on opportunistic strategies as the best investment opportunity, as
compared with 32% last year. At the same time, conservative investment opportunities are also picking up pace, with
35% respondents considering core real estate as the best investment strategy.

• Surprisingly, investors’ preference for how to invest changed dramatically from last year; 81% now prefer direct
holdings/separate account mandates, up from 41% last year. In addition, investor preference for club funds, deals, or
joint ventures, has increased from 35% last year to 55% this year.

• In terms of region, Western Europe continues to attract the maximum number of investors, owing to stable economic
conditions and a strengthening debt market. Besides France, Spain, and the UK, Germany is another mature market
preferred by investors and it leads the investment destination pool. A pent-up demand for real estate is also seen
across the US, which is considered a sought-after investment destination by 29% respondents. This trend is in line
with that of last year, when respondents saw New York as a major investment destination, second only to London.

• The European real estate market is expected to see consolidation due to regulations such as the Alternative
Investment Fund Managers Directive (AIFMD), and the existing Basel III and Solvency II directives.

We believe that stabilisation of the debt condition, supported by sovereign wealth funds and globally-operating pension
funds, will lead to an increase in global real estate investment over the next few years. We will continue to monitor the
trends and bring you the right information at the right time, enabling you to make the right decision for your portfolio.

About the survey

KPMG RE-Invest Survey, now in its third year, has been designed as a preamble to the annual RE-Invest Summit, to
be held at Cannes this year. KPMG and MIPIM RE-Invest have conducted this survey, as part of which select investors
replied to 15 questions, sharing their assessment of the global real estate investment environment and popular
investment strategies for 2014.

With its incisively designed structure and astute questions, the survey gathers the market sentiment and empowers
investors by providing strategic insights into the global real estate investment scenario.

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KPMG RE-Invest Survey
A Questions

1) Are you pursuing a global, regional or domestic investment strategy?

The survey identified three investment preferences among investors – Domestic (investing in their own country),
Regional (investing in specific economic regions) and Global (investing in different countries/regions). While Global and
Regional are pegged as popular investment strategies, very few respondents seemed keen to limit their opportunities to
their domestic markets.

Domestic
Global

16% Regional
39%

45%

2) Which regions/markets offer the best opportunities today?

The survey showed a strong positive bias towards real estate investment in Western Europe, with 81% respondents
confident that it offers better opportunities than Southern Europe (second at 35%), North America (third at 32%) and
South East Asia (fourth at 26%).

Western Europe 81%

Southern Europe 35%
North America 32%
South East Asia 26%
CEE 23%
Nordics 16%
Japan 13%
Russia 10%
Latin America 10%
Oceania 3%
Middle East 3%
Mainland China 3%

0 20 40 60 80 100

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3) Name four countries that offer the best real estate investment opportunity today
Germany continues to outperform, with 71% respondents considering it a prime investment destination. Spain is also
gradually catching up with the European core markets (UK, Germany and France). France and the US are next in line,
posting an equal number of votes at 29% each.

Germany 71%

Spain 45%

United Kingdom 42%

France 29%
United States
29%
of America
Australia 16%

Italy 13%

Poland 13%

Canada 10%

Japan 10%

Netherlands 10%

Belgium 6%

Czech Republic 6%

Russia 6%

Brazil 3%

Estonia 3%

Finland 3%

Ireland 3%

Korea 3%

Mongolia 3%

Sweden 3%

0 10 20 30 40 50 60 70 80

4) Which of the following strategies offer the best investment opportunity?

Investment in real estate debt is continuously showing a downward trend, with only 10% respondents terming it as the
best investment opportunity, significantly down from 21% last year. Investors are increasingly adopting opportunistic
strategies, up from 32% last year to 42% this year, thereby investing in high-quality undervalued assets to bank on the
gains of strong market revival in the future. However, an increase in preference for core real estate as an investment
opportunity to 35%,from 29% last year, reflects that conservatism continues to exist.

Opportunistic
strategies 42%

Core real estate 35%

Emerging markets 10%

Real estate debt 10%

Listed property/REITs 3%
Fund/portfolio
secondaries 0%

Niche sectors, such as

0%
social infrastructure

0 10 20 30 40 50

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5) What parts of the real estate market are you targeting?
Investors appear to be shying away from prime or trophy properties, mainly due to high cost and low yield. Nearly an
equal number of investors prefer core assets and core-plus assets, as compared with 67% core asset investment
preference in last year’s survey.

Core-plus; good
68%
quality secondary

Core 61%

Prime/trophy 29%

Other secondary 26%

Tertiary 3%

Others 0%

0 10 20 30 40 50 60 70

6) What property types are you most interested in?

The spectrum of investable property has widened to include car parks and student housing. Office property remains the
most popular option, with 81% respondents preferring it, while 65% showed an interest in retail property.

Office 81%
Retail 65%
Hotels 32%
Residential 26%
Industrial/logistics 26%
Healthcare/retirement 13%
Car parks 3%
Data centres 3%
Student housing 0%
Others 0%

0 10 20 30 40 50 60 70 80 90

7) Are you planning to increase your real estate
exposure in the next 12 months?
Following the incumbent trend, investors are expected
to increase their investment in alternative assets,
including real estate, with 81% expressing interest in
doing so.
8) Are you investing in real estate as part of a wider real
assets strategy?
The survey shows 61% respondents saying “no” to
investing in real estate as a part of their wider real
assets strategy. As mentioned earlier, real estate may
well be on its way to emerging as a stand-alone major
asset class in a diversified portfolio.

Yes
19% Yes
No 39%
81% No

61%

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9) Are you investing in real estate debt?
Last year, respondents were split 50/50 over whether debt investments offered better risk-adjusted returns than
traditional real estate (equity) investments. There is some amount of apprehension this year, with 58% respondents
showing a lack of interest in investing in real estate debt.

Yes
42% No

58%

10) Where does real estate debt fit into a multi-asset portfolio?
Real estate asset classes include investments in both real estate debt and equity. A total of 71% respondents believe
that any investment in real estate debt will be categorised under real estate rather than in any other fixed income
category.

Real estate 71%

Fixed income 26%

Other 3%

0 10 20 30 40 50 60 70 80

11) Where are the best debt investment opportunities?

There was a significant shift toward senior debt investment, which went from 33% last year to 52% this year. The preference
for mezzanine debt decreased to 35% from 40% last year, indicating a trend of risk aversion, particularly in debt, with a
cautious outlook on volatile markets.

Senior 52%

Mezzanine 35%

Whole
13%
loans

0 10 20 30 40 50 60

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12) Will debt strategies become a much more significant part of institutional real estate portfolios in the future?
Investors continue to express a growing consensus that debt strategies will become a significant part of real estate
portfolios; 68% respondents believe that it will play a bigger role, as against 62% last year.

Yes
32% No

68%

13) Which of the following structures do you employ for real estate investments?
Direct holding or separate account mandates emerged as the preferred investment structure, with 81% respondents
preferring this compared with 41% last year. The preference for club funds/deals/joint ventures also increased from 18%
in 2013 to 55% this year.

Direct holdings/separate
81%
account mandates
Club funds/deals/joint
55%
ventures
Pooled funds 23%

Listed property/REITs 23%

Fund of funds/
6%
multi-manager mandates

Others 0%

0 10 20 30 40 50 60 70 80 90

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 B Hypotheses

14) Europe as a major investment hub

With second-tier European markets, such as Spain and Italy, regaining economic stability, most respondents agree
that risk-averse investors will continue to consider Europe a major investment hub over the next five years. This is
encouraged by a gradual improvement in the debt scenario across Europe and a growing interest from sovereign wealth
funds and pension funds.

European core markets will remain industry hot spots

in the next 5 years and attract overseas investments
while the European 2nd tier markets: Ireland, Spain, 3% 90% 6%
Italy and Portugal will become focus of international
real estate capital flows in 2014 and 2015.

Debt availability for European real

estate investments will contract 29% 32% 32% 6%
further during 2014 and 2015.

New entrants to the European debt markets,

such as Insurance companies and PE houses,
will not be able to replace traditional debt 39% 35% 23% 3%
providers leading to further contraction of debt
availability for real estate investments.

Sovereign Wealth Funds and Global acting big

Pension Funds will dominate the European real 10% 39% 29% 23%
estate markets over the next five years.

0 10 20 30 40 50 60 70 80 90 100

Strongly Agree Agree Neither Agree/Disagree Disagree Strongly Disagree

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15) Shift in the European real estate market
The survey results indicate that respondents expect a systemic shift in the European real estate market. There will be a
significant increase in compliance costs, particularly for private fund managers, following the emergence of regulations
such as the Alternative Investment Fund Managers Directive (AIFMD). The finance market is already affected by the
Basel III and Solvency II directives, which make raising money a challenge. Owing to this, 45% respondents believe that
European real estate fund managers will witness increased consolidation and operation optimisation.

The increasing regulatory and compliance

burden will trigger real estate fund manager 10% 45% 32% 13%
consolidation in Europe.

Reduced costs will be a bigger driver for developing

green and sustainable real estate assets than the 19% 42% 16% 23%
corporate and social responsibility agenda.

Access to data will drive new sources of revenues for

the European real estate industry over the next five
13% 42% 35% 10%
years and data management will become a major
USP for asset managers over the next five years.

Driven by increasing transparency, regulation and

compliance requirements the real estate industry
19% 55% 16% 10%
will need to invest significantly in systems and
procedures over the next five years.

0 10 20 30 40 50 60 70 80 90 100

Strongly Agree Agree Neither Agree/Disagree Disagree Strongly Disagree

K P M G R E - I n v es t S u r v e y | 11
Contacts
KPMG Europe KPMG in Italy KPMG in Russia
Stefan Pfister Maurizio Nitrati Sven Osmers
Partner, Head of Partner, Head of Building, Director, Head of
Real Estate Europe/EMA Construction & Real Estate Real Estate
T: +41 58 249 54 16 T: +39 06 80 97 1480 T: + 7 495 663 8497
E: stefanpfister@kpmg.com E: mnitrati@kpmg.it E: svenosmers@kpmg.com

KPMG in Germany Andrea Giuliani KPMG in Spain

Sven Andersen Associate Director, Borja Goday
Partner, Real Estate M&A Advisory Director, Corporate Finance
T: +49 69 9587 4973 T: +39 06 80 97 1483 T: +34 914 565 921
E: sandersen@kpmg.de E: agiuliani@kpmg.it E: bgoday@kpmg.es

Gunther Liermann KPMG in Central and KPMG in Sweden

Partner, Corporate Finance Eastern Europe Björn Flink
Real Estate Andrea Sartori Partner, Head of Real Estate
T: +49 69 9587 4023 Partner, Head of T: +46 8 7239 482
E: gliermann@kpmg.de Real Estate E: bjorn.flink@kpmg.se
T: +36 1 887 72 15
Jürgen Paskert E: andreasartori@kpmg.com KPMG in Switzerland
Partner, Audit Real Estate Ulrich Prien
T: +49 89 28644 5158 KPMG in Luxembourg Partner, Head of Real Estate
E: jpaskert@kpmg.de Pierre Kreemer T: +41 58 249 62 72
Partner, Head of E: uprien@kpmg.com
Stefan Schmidt Real Estate & Infrastructure
Partner, FS Tax Real Estate T: +35 2 22 5151 55 02 KPMG in UK
T: +49 69 9587 2160 E: pierre.kreemer@kpmg.lu Richard White
E: stefanschmidt@kpmg.de Partner, Head of Real Estate
KPMG in Finland T: +44 20 7311 4010
KPMG in France Teemu Haataja E: richard.white@kpmg.co.uk
Régis Chemouny Manager, Head of Real
Partner Estate and Construction Stephen Barter
T: +33 1 5568 6818 Sector Services Director, Chairman of UK Real
E: rchemouny@kpmg.fr T: +35 8207 6036 44 Estate Advisory
E: teemu.haataja@kpmg.fi T: +44 20 7694 1906
Mark Wyatt E: stephen.barter@kpmg.co.uk
Partner, Country Head KPMG in Netherlands
Corporate Finance Hans Grönloh
T: + 33 1 5568 9300 Partner, Head of
E: markwyatt@kpmg.fr Real Estate the Netherlands
T: +31 20 656 7792
E: gronloh.hans@kpmg.nl

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