LaSalle Investment Management

A reader waking up from a quarter-long slumber on April 1, 2025 would be forgiven for confusing the headlines for an April Fools' Day prank. They would scan the news and see stories about:• large tariffs alternately announced, rescinded, delayed and reintroduced at a breakneck pace (see LaSalle Macro Quarterly, or LMQ, p. 4);• US equities in correction territory as ex-US markets, including even China's, outperform (LMQ p. 25); • increasing calls that the risk of a US recession is rising (LMQ p. 20); and • substantial upward revisions in forecasts of long-term European GDP growth (LMQ p. 21). Each of these is at least partly (and in some cases completely) contrary to expectations from the beginning of this year. But the quick reversal in the economic narrative is no April 1st joke. The post-election consensus of a supercharged US economy pulling ahead of the rest of the world has clearly been challenged, if not upended. In this period of elevated policy uncertainty, real estate investors should focus on what they can and should do amidst all the noise. At the risk of stating the obvious, we think it helps to take a step back and break down the analysis into three basic steps of incorporating news flow into investment strategy — the what, the so what, and action steps. But as we will discuss, the first two are characterized by so much uncertainty that it is also helpful to start from the end and work backwards, asking: What can investors do to improve their chances of successfully navigating this environment regardless of what happens?Contributors:Brian KlinksiekGlobal Head of Research and StrategyPetra BlazkovaManaging Director, Research and Strategy

Listen in as Dave White and Dominic Silman discuss questions about debt investing in Europe: 0:10-1:37 How have RED opportunities changed in the last few years? 1:38-2:50 How has LaSalle determined where and what to invest in? 2:54-4:21 What does all of this actually mean for investors?

Listen in as Dave White and Brett Ormrod discuss questions about debt investing in Europe: 0:10-1:10 Why do green loans seem to be the exception? 1:12-2:03 How is this affecting the market? 2:05-3:03 How are sponsors and investors responding to these challenges? 3:05-3:45 What does this mean for investors bottom lines? 3:48-4:37 How would you summarise the current opportunity?

The summer and autumn of 2024 saw growing optimism among real estate investors. The belief that the dawn of 2025 would open with sunny skies for the real estate market was driven by falls in interest rates from peak levels, fading economic growth concerns and real estate valuations now more aligned with market transactions. But with more uncertainty creeping into the picture in late 2024, especially around longer-term interest rates, what we see could be described as a “partly cloudy sunrise.” Contributors: Richard Kleinman Americas Head of Research and Strategy Chris Langstaff Canada Head of Research and Strategy

While dawn is universal, across Europe it can appear different from each location and every angle. European real estate is transiting inflection points following a deep capital market correction. The INREV ODCE index shifted in the latest quarter from declines to positive after seven down quarters. Against this backdrop, we share our Impressions of a Rising Cycle in Europe, with a focus on what makes the region different from others across the globe. We also share our five key strategy themes for investors in European real estate for the year ahead. Contributors: Dan Mahoney Europe Head of Research and Strategy Dominic Silman, PhD Europe Head of Debt and Value-add Capital Research and Strategy Petra Blazkova Europe Head of Core and Core-plus Research and Strategy

In the Global chapter of ISA Outlook 2025, we look at how to make the most of this new dawn and the opportunities it may present, but with a watchful eye on ways the new day could go off track. We examine these through four broad themes in this year's report: the morning sky, the capital stack hangover, the breakfast menu, and the early bird. We examine each of these concepts in turn, and ask what each means for real estate and they intersect with one another and other key trends. Read more at: https://www.lasalle.com/Outlook2025 Contributors: Brian Klinksiek Global Head of Research and Strategy Eduardo Gorab Managing Director, Global Research and Strategy

We regularly receive questions about past property market dislocations and what they might tell us about today, such as: Is office the new retail?, Will the 7+ years it took retail to rebalance be a template for office? and Should we be worried about the wave of supply in US apartments? In our latest ISA Focus report, Rebalancing past and present, we engage in patten recognition across a range of historical episodes of occupier market challenges. We present a framework for how these imbalances tend to be resolved, and discuss the range of structural and cyclical factors that drive rebalancing. We also present a selection of historical case studies from around the world, highlighting the complex nature of the rebalancing process and how it can occur not only at different speeds, but also with “bumps in the road” for investors. Contributors: Brian Klinksiek Global Head of Research and Strategy Chris Psaras Senior Strategist, European Research and Strategy Heidi Hannah Senior Strategist, Americas Research and Strategy Kyra Spotte-Smith Associate, Research

One of the most important factors we consider when deciding where to invest capital is the transparency of a real estate market. This encompasses the transparency of market fundamentals and investment performance, as well as: its legal and regulatory transparency, the prevalence of listed vehicles, the transparency of transactions processes, and the transparency of reporting on sustainability factors. During times of heightened uncertainty, transparency is more important than ever as a foundation that allows real estate occupiers, investors and lenders to operate and make decisions with confidence. Our latest ISA Focus report, Transparency and Strategy, explores these factors and their implications for real estate investors. We release this report alongside the Global Real Estate Transparency Index (GRETI) for 2024. GRETI is a joint publication between LaSalle and our parent company, JLL, which is based on a global survey of our extensive network of real estate market experts. Contributors: Brian Klinksiek Global Head of Research and Strategy Eduardo Gorab Managing Director, Global Research and Strategy

While traditional banks' appetite for providing commercial real estate loans has declined, other lenders (including investment management firms such as LaSalle) have moved in to fill the funding gap. As a result, we have recently seen increasing interest from institutional investors in real estate debt. But what is it about real estate debt that makes it a compelling investment? As the second largest of the “four quadrants” of real estate, it has a value in the US and Europe alone of approximately US $4.5 trillion, representing an enormous opportunity. Real estate debt historically has produced competitive risk-adjusted returns in addition to showing low correlation to other assets. In our latest research, we examine the three-part case for investment, including: Real estate debt's place in institutional portfolios, The role of non-bank lending, and The debt opportunity today, which takes advantage of a looming debt funding gap and attractive pricing. Contributors: Brian Klinksiek Global Head of Research and Strategy Dominic Silman , PhD Europe Head of Debt and Value-add Capital Research and Strategy Jen Wichmann Senior Strategist, Research and Strategy Hina Yamada Senior Research Analyst, European Research and Strategy

We published the global chapter of the ISA Outlook 2024 on November 14, 2023, just before euphoria about a potential ‘V'-shaped property market turnaround emerged. Interest rates fell quickly as financial markets priced in several US Federal Reserve (Fed) rate cuts in 2024. For a time, it looked as though our prediction that it would take a little longer for markets to digest a renewed spike in rates would not age well. In this Mid-Year Update, however, we look back to find an outlook with an uncanny resemblance to that of six months ago. This is not because nothing has changed, but because the mood has gone full circle. The landscape remains characterized by interest rate volatility, soft fundamentals in some markets, and gaping quality divides, but also by pockets of considerable strength. Another factor that has not changed is that financial conditions (i.e., interest rates) remain the dominant driver of the market, and that political and geopolitical uncertainties are in focus in many countries. Contributors: Brian Klinksiek Global Head of Research and Strategy Eduardo Gorab Head of Global Portfolio Research and Strategy

Recognition has grown substantially in recent years that climate risk can shape real estate investment outcomes. This owes to an increasing frequency and severity of loss events,1 surging insurance premiums,2 improving data availability and a mounting reporting burden driven by regulations.3 Investors have had to move quickly from acquiring basic climate risk literacy, to sourcing good quality climate risk data, to most recently, leveraging that data into improved investment decisions. There is a clear and rising likelihood that investors on the lagging edge of this process may underperform. At LaSalle, we have sought to share insights from our own climate risk journey, combining that with broader analysis of our industry's climate risk challenges and opportunities. In 2022, we partnered with the Urban Land Institute (ULI) on a report, How to choose, use, and better understand climate-risk analytics, which addressed the difficulties in selecting and evaluating climate data from an ever-changing and increasingly crowded—and sometimes contradictory—data provider landscape. In April, we released a new report with ULI, Physical Climate Risks and Underwriting Practices in Assets in Portfolios, which looks at how investors are taking these data and seeking to make better-informed buying, selling and portfolio construction decisions based on them.  While the joint ULI report takes an industry-wide view, this ISA Briefing looks at the topic through the lens of LaSalle's own investment process. We present three case studies of our evaluation of climate risk on a regional, market and asset-level scale. These examples – one each from each of our global investment regions – illuminate how we are taking account of climate risk and lay out our views on issues investors should be thinking about. Contributors: Brian Klinksiek Global Head of Research and Strategy Tobias Lindqvist Strategist, Climate and Carbon Lead Simone Caschili Senior Analytics Strategist Amanda Chiang Senior Research Analyst

Roughly 60% of the world's population lives in countries facing major elections in 2024, markets representing 65% of the institutional investable real estate universe.1 Elections are, of course, the cornerstone of the democratic process, which in turn underpins the appeal of the most transparent, investable markets; that said, elections come with the possibility of policy changes that may impact returns. Today's geopolitical risks, whether they be this continuing election super-cycle (see LaSalle Macro Quarterly, or LMQ, page 4), or the various ongoing conflicts and trade disruptions, prompt important questions about how to manage investment risks related to these themes. Contributors: Brian Klinksiek Global Head of Research and Strategy Zuhaib Butt Head of Investment Risk Strategy and Management

Purpose-built student accommodation (PBSA) in Europe ranks as one of our top-conviction sectors for investment in the coming years. No longer deserving of the “niche” label in the United Kingdom, it is already more institutional than any other type of living sectors property in the country and is rapidly maturing in Continental Europe as well. The rise of student accommodation on investors' buy lists is for good reason. This ISA Briefing will set out why that is so and discuss how the sector stands out in Europe compared with student housing in the rest of the world. Contributors: Brian Klinksiek Global Head of Research and Strategy Ryan Daily Vice President, Strategist Wayne Qin Vice President, Strategist Jen Wichmann Senior Strategist

In the past decade, the urbanization narrative in the United States has shifted from the “rebirth of cities” to the “rise of the suburbs.” What are the drivers of this shift, and how does it impact real estate? In this ISA Briefing, we tackle these questions and share our outlook for how future dynamics could impact migration and urbanization trends. Contributors: Brian Klinksiek Global Head of Research and Strategy Richard Kleinman Americas Head of Research and Strategy Jen Wichmann Senior Strategist, Research and Strategy

The sheer size and complexity of the Asia Pacific region means real estate markets and investment opportunities are as diverse as the region itself. In the final chapter of ISA Outlook 2024, we discuss this complexity and how China's new economies – such as high-tech manufacturing and biotechnology – are growing rapidly and, after more than two decades, Japan is hoping to bid sayōnara to deflation. In other key parts of the region – Australia, Hong Kong, Singapore and South Korea – central banks are near the end of their rate-hiking campaigns in a bid to lower inflation which, as in the rest of the world, could lead to a rebound in transaction activity. Contributors: Elysia Tse Asia Pacific Head of Research and Strategy Fred Tang, PhD China Head of Research and Strategy Dennis Wong Senior Strategist, Asia Pacific Research and Strategy

Against a volatile macroeconomic backdrop and with growth expected to slow, we believe that in 2024 it will be the trajectory of interest rates that will have the greatest impact on real estate values in the US and Canada. As investors continue to adapt to cooler conditions, this chapter of ISA Outlook 2024 examines the current landscape and looks ahead to the coming year, including where we see select opportunities emerging, as well as variation between the two markets. We conclude with three broad strategic themes and recommended strategies where investors may consider deploying their capital. Contributors: Richard Kleinman Americas Head of Research and Strategy Chris Langstaff Canada Head of Research and Strategy

European property markets have been waiting for a peak in European Central Bank and Bank of England policy rates, for an end to the war in Ukraine and for bid-ask pricing spreads to resolve. Investors ready to move out of waiting mode in 2024 can benefit from rebased prices, opportunities to solve capital stack equations, and strong fundamentals in many sectors. In this chapter of ISA Outlook 2024, we examine the state of the European market and conclude with recommendations for specific investment strategies – underpinned by realism and targeted toward areas of forecast resilient income growth. Contributors: Dan Mahoney Europe Head of Research and Strategy Petra Blazkova Europe Head of Core and Core-plus Research and Strategy Dominic Silman, PhD Europe Head of Debt and Value-add Capital Research and Strategy

The global macroeconomic context for real estate remains unsettled, and more so than earlier in 2023. Until late summer, interest rates in most major markets exhibited high volatility, but little overall trend. They moved mainly sideways, owing to cooling inflation and expectations that central banks were reaching the end of their tightening cycles. This was helpful in setting a pricing baseline for real estate investors. But the outlook for rates and thus real estate pricing has become more unsettled of late. What does this mean for real estate and how does it intersect with other key trends? Contributors: Brian Klinksiek Global Head of Research and Strategy Eduardo Gorab Head of Global Portfolio Research and Strategy

We have been fielding questions on two big macroeconomic topics impacting the Asia-Pacific region: (1) the outlook for China's economic recovery and (2) the path of the Bank of Japan's monetary policy. These involve legitimate worries about China's growth engine and the risk of interest rate hikes in Japan. Nonetheless, we find that media coverage of these topics can sometimes sensationalize their implications without going below the surface. In this ISA Briefing, and the accompanying LaSalle Macro Quarterly (LMQ), we dissect these concerns and share our views on several frequently asked questions. Our analysis points to a nuanced picture that is more supportive of investments in these two countries than the media coverage might suggest. Contributors: Brian Klinksiek Global Head of Research and Strategy Elysia Tse Asia Pacific Head of Research and Strategy Fred Tang, PhD China Head of Research and Strategy Wayne Qin Vice President and Strategist, Asia Pacific Research and Strategy

The art and science of portfolio construction matters most when market conditions change suddenly. This has never been truer than in the past few years, which saw major pivots in capital markets as policymakers shifted from trying to stimulate the economy at the start of the pandemic, to applying the breaks to prevent inflation running out of control. The speed and unpredictability of these changes highlights the importance of planning ahead by thinking carefully about how to create portfolios that can be expected to be resilient. Foundational concepts of portfolio management such as diversification and risk management should be considered alongside an investor's objectives and values to devise a strategy for their portfolio. It is with these factors in mind that we release first edition of LaSalle's ISA Portfolio View, which seeks to answer five foundational questions about real estate:   Why real estate lays out the case for property exposure in a multi-asset context?    Why global considers the benefits of expanding horizons beyond an investor's domestic market?    Why be sector smart tries to make sense of the recent changes in relative sector performance with an eye to building resilient portfolios?    Why be quadrant smart addresses the interplay among the “four quadrants” of real estate?    Why manage risk explores the importance of—and our approach to—managing investment risk?   In many ways the ISA Portfolio View is the continuation of a longstanding strand of LaSalle's analysis that would typically form the latter chapters of the Investment Strategy Annual. In this new standalone edition, we draw from a deep pool of experts from around the firm, acknowledging the interconnectedness of real estate opportunities: across borders, across sectors, and across quadrants. We welcome your questions and feedback. Contributors: Brian Klinksiek Global Head of Research and Strategy Eduardo Gorab Head of Global Portfolio Research and Strategy

In recent editions of LaSalle Macro Quarterly (LMQ), many charts have highlighted interest rate rises. LaSalle has especially focused on the repricing of income-producing real estate that rate rises have triggered in much of the globe. But the spike in rates is also having an impact on owner-occupied residential real estate, which accounts for a much larger share of the global property pie than do institutional assets. As we release the LMQ for Q3 2023, we look at the broad implications of higher residential mortgage rates, and how they vary by country. Even if institutional investors do not directly touch owner-occupied housing, they should consider the risks (and a few opportunities) caused by these dynamics. Higher residential mortgage rates have implications for both new buyers and existing owners. For new buyers, higher rates reduce the purchase price they can pay (assuming a fixed amount of debt service). In practice, buyers cope with this by dedicating a larger share of their income to housing, or by scaling back or postponing their home purchase ambitions. For economies in which housing constitutes a meaningful share of the economy, this can create a noticeable drag on GDP growth. It may also put downward pressure on home prices, which can have indirect wealth effects on consumer spending. (So far, house prices for key countries have held up reasonably well during this period of rising rates—as shown in the chart on page 7 of the LMQ—but risks remain.) For existing owners, much depends on the specific terms of the mortgage. The US mortgage market is unique globally in having a very large share of loans with rates that are fixed over a fully amortizing term (typically 30 years), according to data from Fitch. Assuming they do not move, borrowers can continue to enjoy low fixed payments. Elsewhere in the world, residential mortgage rates are usually floating or fixed only for a limited time. When rates rise, they filter through to borrowers gradually as fixed rate periods end—in other words, when rates reset. Depending on the mechanism for rate resets, they can cause a direct hit to disposable incomes. Households may react to this by scaling back spending elsewhere, or in the extreme, leaving the ranks of homeownership. These impacts will be more significant in places where consumers already have a high debt service burden. For investors in income-producing institutional real estate, there are two aspects of these dynamics that are especially relevant. One is the broad recession risk that comes from weaker housing markets and stretched consumers. Oxford Economics has cited differential exposures to mortgage resets as a driver of divergence in near-term economic growth between the US and Canada. Second, the substitution effect from owned to rented housing may provide a boost to both multifamily and single-family rental demand, potentially driving stronger performance for residential strategies. Contributors: Brian Klinksiek Global Head of Research and Strategy Canada Head of Research and Strategy

Through history, residential rent controls have tended to appear at times of external shock and dislocation. COVID-19 and the subsequent inflationary spike have proven to be such a catalyst. Changes to rent regulations can potentially  reshape the risk-reward profile of residential investments, impacting values over both short and long timescales. As we set out in a previous piece, A New Wave of Residential Rent Control, the introduction of rent control measures can also have unintended consequences that distort the market. While often sold as a solution to spiraling housing costs, in practice they can have the opposite effect to their intent, deterring the construction of new rental housing, thus leading to further increases in rents.   Our findings in that report still hold true, but an update is needed because the “great reflation” period has seen a groundswell of support for further rent regulations, especially in Europe. The pandemic opened the door to unprecedented government intervention, and there has been a heightened willingness among politicians to introduce forms of rent control. But there continues to be vast differences across countries, regions and cities, reflecting varying political appetites for intervention. What is the impact of these recently enacted measures and which markets have been most impacted? Contributors: Brian Klinksiek Global Head of Research and Strategy Ryan Daily Vice President, European Research & Strategy   Jen Wichmann Browne Senior Vice President, US Research & Strategy  

We property strategists are accustomed to working with traditional real estate variables such as net absorption, rental growth and vacancy rates. But in the early days of the COVID-19 pandemic, there was no choice but to go on a crash course in previously unfamiliar epidemiological concepts like positivity rates, R-naught¹ and vaccine effectiveness, as these suddenly became drivers of short-term real estate conditions. Over the past year, real estate researchers have likewise had to quickly scale a learning curve in understanding energy markets. For the first time ever, we produced charts denominated in once esoteric units of measurement like therms, MMBTUs and MWhs. Gas, electricity and oil prices have long been linked to real estate outcomes—energy crises sparked 1970s inflation and have shaped real estate demand from Alberta to Texas and Scotland. But when supply is predictable and prices moderate, as in the years before the pandemic, those links can become dormant. They have awoken again in the past year. The recent dramatic but uneven volatility in energy prices has deeply influenced the economic and property market outlook—especially in Europe—and we expect it to continue to do so going forward. Contributors: Brian Klinksiek Global Head of Research and Strategy Petra Blazkova Europe Head of Core and Core-plus Research and Strategy Hina Yamada Research Analyst European Research and Strategy

The balance of virtual and in-person interaction is close to a post-pandemic steady state. So we observed in our ISA Outlook 2023, where we called this out as one of our key global themes for the year. We pointed out that after a long​ period of gradual improvement in office attendance, the rate of change has substantially leveled off, with weekly office visits stabilizing below 50% in many US markets, and at somewhat higher levels in Europe and substantially higher levels in much of Asia-Pacific.​ In many markets, but especially North America, work-from-home (WFH) headwinds have hit leasing demand as leases roll. An anticipated boost from permanent social distancing failed to materialize. At the same time, the cyclical outlook for job growth has weakened with the macroeconomy. These factors have contributed to deepening worries about the prospects for office values, which have made front-page news due to prominent defaults on commercial mortgages backed by office assets.​ In this context, we thought it important to revisit the prospects for the office sector, addressing key questions, while highlighting differences and similarities among global markets. Where are risks greatest and where are they less? How should we think about the role of office in the portfolio? How will current trends play out in the various regions where we invest?​ This is also an opportunity to look back on our predictions to assess where we got things right, and where we did not. As a part of this, we introduce a new feature in our ISA suite, “Looking Back”, in which we check on our prior predictions and forecasts. Contributors: Brian Klinksiek Global Head of Research and Strategy Chris Psaras Senior Strategist, European Research and Strategy Dennis Wong Senior Strategist, Asia Pacific Research and Strategy Heidi Hannah Senior Vice President, Americas Research and Strategy

After nearly three years of enforcing a comprehensive approach to COVID-19, involving frequent testing, rigorous contact tracing and strict border quarantines, China unexpectedly ended its zero-COVID policy in early December 2022. After an initial period of surging new infections, by mid-January 2023 the situation had improved substantially. Most recently, cases have fallen sharply as the virus has already infected a large share of the population. Life in China is quickly returning to normal, as evidenced by rebounding subway passenger volume and rising road congestion. This return to pre-pandemic normality has meaningful implications for the economic and real estate outlook in China, the broader Asia-Pacific region and the world.  Contributors: Brian Klinksiek Global Head of Research and Strategy Fred Tang, PhD China Head of Research and Strategy

Silicon Valley Bank (SVB) and Signature Bank failed. Regulators hastily arranged the sale of Credit Suisse to UBS. Concerns spread about numerous other small and major global banks including Deutsche Bank. Recent events have raised fears that the global economy is in for a credit crunch of unknown magnitude and duration. As we release our first LaSalle Macro Quarterly (LMQ), a revamp of our long-standing “macro indicators deck,” banking sector strains represent the number one macro risk we are assessing.  The proximate cause of each recent bank failure was deposit flight, a drain from the liabilities side of the bank balance sheet. This is fundamentally not a toxic assets problem of the sort that banks faced in the Global Financial Crisis (GFC). Rather, it is a liquidity issue that can be addressed by temporary emergency funding from central banks. But solvency, the greater concern for banks in the longer run is closely tied to the duration of the asset book.  When investors in interest rate-sensitive assets refer to duration, they typically mean the change in value associated with a change in risk-free rates. SVB failed, in large part, due to a perception that it had sustained severe losses on riskless (but long-duration) US Treasuries and near-riskless agency mortgage-backed securities as these assets had mechanically repriced in the higher interest rate environment.  Just as there was a mechanical element to the initiation of this crisis, there is a mechanical feedback loop that can help the crisis partially self-resolve. As worries around bank solvency, credit conditions and the real economy spread, expectations for policy rates fell, causing long-duration assets to once more increase in price, shoring up balance sheets.  As a result, there has been a 360-degree round trip in interest rate forward curves between the beginning of February and the end of March. At first, curves shifted upward due to spiking inflation data, before falling substantially as banking systems came under pressure, followed by a return to the status quo as resolution measures stabilized markets and inflation seized the attention of policymakers and investors once again. As a result of this volatility in rate expectations, the MOVE index of bond option volatility has reached the highest levels since the GFC.  There are many media, economic and financial industry sources to turn to for a deeper discussion of the underpinnings of the recent financial sector instability, or to track the daily news flow and the resulting volatility. Our focus is on the practical considerations for investors in property. We have identified four key recommendations for how real estate investors can assess risks and manage through volatility.  Contributors: Brian Klinksiek Global Head of Research and Strategy Dominic Silman, PhD Europe Head of Debt and Value-add Capital Research and Strategy Zuhaib Butt Director of Investment Risk Strategy and Management

Inflation, energy and real estate Inflation has moved rapidly from overlooked to top-of-mind this year. For the past eight months, many different types of price movements have received significant attention among economists, central bankers and real estate owners and occupiers. Global supply chain bottlenecks and pandemic-related fiscal and monetary stimulus have all contributed to price instability. More recently, Russia's invasion of Ukraine has been a particularly troubling cause of energy price volatility, especially in Europe. Many countries are transitioning their energy grids to more renewable sources, but a full transition could take several decades. Fossil fuels supply about 77% of the world's energy, according to the Environmental and Energy Study Institute (see p. 7). The chaotic collision of inflation and energy shortages – particularly in Europe – has decision-makers scrambling as winter approaches. The disruption of Russian natural gas flows to Europe prompted delegates of the European Union to discuss solutions and to wean itself from Russian gas. Some are promoting a common price cap on all gas imports, while others believe this will limit supply, further stressing consumers and businesses. As winter approaches, strategic reserves in Europe are at full storage capacity (see p. 45 Gas Storage), so an immediate crisis has likely been averted. However, it remains unclear how these reserves will be replenished once they are depleted. Our analysis of this rapidly-changing situation in Europe can be found on p. 9 of this month's deck. Energy inflation is also impacting lease agreements between real estate owners and occupiers. Green Street Advisors recently noted that on average, energy costs to either the owner or tenant equals roughly 6% of total rent or USD ~$2.00 psf in both the US and EU. But with energy costs having risen sharply, the question becomes: who bears the cost? In North America, most commercial leases are triple net, with tenants responsible for utilities, taxes, maintenance, and insurance. Triple net leases are also prevalent among retail properties in the US and Canada, but Canada also has gross, semi-gross or base-year leases which are indexed to CPI inflation. While tenants pay directly for their energy usage, owners are not fully off the hook as they bear responsibility for vacant spaces. Owners can also mitigate cost risk through guaranteed maximum price contracts for certain utilities. Leases in the UK are also generally on a net basis. However, to counter rising prices, tenants have been renegotiating rents based on total occupancy cost, thus the property owner becomes responsible for any costs that exceed a threshold. In this regard, UK tenants have been increasingly seeking different lease structures that are effectively gross in nature, with shorter lease terms (see p. 10). On the European continent, most commercial leases are fully indexed to inflation annually. Larger retail tenancies such as grocers often have bargaining power and can negotiate an index cap or lower indexation levels. But even with indexation, tenants are becoming more sensitive to utility costs and are negotiating for increases to be capped. In Japan and China, fixed-term leases typically put the burden of paying higher utility costs on the tenant, but landlords must be careful to keep total occupancy costs under control or a downward reset to the base rent could be the only way to get a tenant to renew. Despite progress in transitioning energy grids to renewables in many countries, the world remains largely dependent on fossil fuels to provide the power to heat and cool buildings. Rising energy prices are testing the tenant-landlord relationship and the balance of power is rapidly shifting in favor of tenants, especially in weaker sectors like mall retail and offices.

The last day of summer in the Northern Hemisphere was September 22nd, and cooler temperatures will surely be welcomed by many. Europe and China recorded their hottest-ever summers since recordkeeping began in 1880, according to NOAA's National Centers for Environmental Information. Meanwhile, the US recorded its third-hottest summer by the same metric. Our recent report, “How to Choose, Use and Better Understand Climate Risk Analytics," researched and written in partnership with the Urban Land Institute (ULI), is an excellent overview of the challenges faced by first-time consumers of climate data. The paper outlines physical climate risk basics, identifies differences between data providers to be aware of, and raises a call to action to standardize the outputs in ways that are most meaningful and useful for real estate, with transparency that enables apples to apples comparisons across models. Once the data is in hand, the next step is to manage the risks at two levels: at the property level, through evaluating both existing and potential new hardening strategies to be more resilient against particular hazards; and at the portfolio level, through assessment of exposure concentrations and consideration of how climate risk informs overall portfolio construction strategies. And lastly, we must continue to monitor these risks on a regular basis, because one thing we know for sure is that our climate will continue to change, and more disruptive and damaging seasons like the hot summer of 2022 are likely to recur. Learn more at lasalle.com/research

An unrelenting wave of macro news amidst record-breaking heat has carried through all of 2022 to the start of August. With persistent high inflation readings (p.13), energy price volatility and supply disruption (p. 20), interest rate hikes (p. 4), bear equity markets (p. 8), heightened recession risk (p. 3), and VC capital slowing (p. 7) – the post-COVID recovery cycle is at risk. Yet August, with its summer festivals and family holidays for many, is a good month to put the frenetic pace of change into perspective. Many of the indices, prices, and events summarized in our macro indicators deck reveal just the tip of the iceberg, with a deeper, complex story hidden from view. Often only a longer form, like a book, can do justice to these stories. Recently published books that we're reading – and recommending - this summer delve into energy geopolitics, climate change impacts, and the history of real estate and investments.

The Transition from Acute to Chronic Stress Three months after the Russian invasion of the Ukraine, the fighting and destruction continues. Our March macro deck focused on the ensuing volatility of equity markets, consumer prices and energy costs. In June, there is no sign of the conflict abating, volatility in the capital markets remains high, and energy costs continue to edge upward. As the situation in Ukraine transforms from an acute conflict into a chronic state of affairs, it joins a string of other global stress points that remain ongoing and without closure. Among them are: COVID-19, rising inflation, supply-chain blockages, climate change, and geo-political tensions that exist far beyond Eastern Europe.

The news from Ukraine is disturbing and relentless. Lurking under the headlines are dramatic economic gyrations -- higher interest rates, higher inflation, successive waves of “risk-off” and “risk-on” market sentiment, yield curve changes, and rising commodity prices. This volatility should not go unnoticed; it is the focus of our April Macro Deck.

Russia's incursion into Ukraine began in the early hours of February 24th and has progressed rapidly and violently every day since, showing that “frozen” conflicts can heat up quickly. The gravity of the situation for Ukraine's people and seriousness of the risks to the post-Cold War geopolitical order cannot be overlooked. The geopolitical tremors of Russia's action and the West's sanctions are likely to be felt across the world for many years to come. But direct implications for institutional real estate portfolios are relatively limited. Rather, the key channels of influence on property markets are likely to be indirect and macroeconomic in nature. These include higher inflation, “risk off” market sentiment, and accelerated changes in the European energy mix. The March Macro Deck contains a summary of the rapidly evolving situation in Ukraine as well as other trends around the world.

Over one fifth of the world's population celebrate Lunar New Year on February 1st, 2022 – the most important holiday on the calendar for many Asian cultures, particularly the Chinese. We are heading into a year of the Water Tiger which occurs every 60 years. In China, the tiger is considered the king of all beasts, symbolizing strength and bravery. China is certainly making a strong and brave move at a time when many central banks around the world are taking an increasingly aggressive stance to counter rising inflation. With the U.S. inflation rate reaching a 40-year high, the Federal Reserve (Fed) communicated a hawkish move toward policy normalization in January. By contrast, the People's Bank of China is on a different path and has been easing monetary policies to counter the slowing economic growth. China's bold move stemmed from its ability to deliver 8.1% GDP growth in 2021, despite the headwinds from the COVID-zero policy and the slowing for-sale residential sector. The second largest economy of the world is not the only country deviating from the U.S. Historically, most central banks in Asia Pacific followed the path of the Fed. However, this time around, several central banks in Asia Pacific are responding to different circumstances. We are heading into a rare territory of diverging global monetary policies. Tse Elysia - Head of Research & Strategy (Asia Pacific)

January 2022 Retrospective Indicators & Prospective Trends As capital market volatility rises and the pandemic enters its third year, the role of strategy is especially important to set a course and to stay on track. The macro themes in the 2022 edition of LaSalle's Investment Strategy Annual are summarized in our first macro deck of the new year. These five trends provide a road map for navigating real estate markets around the world in the years ahead. Prepare for the Endemic Economy. Expect Rising Liquidity and Inflation. Anticipate Higher Standards. Plan for Climate Change. Take the Long View. High expectations for real estate are tempered by realism and resilience born from a rare combination of uncertainty and extremes in 2021: wildly exceeding expectations in some areas (rebounding spending and asset returns) and deeply disappointing in others (pandemic disruption, bottlenecks, and inflation). Many real estate investors experienced a year of outcomes better than last year's consensus expectations. Rent and NOI growth for residential, logistics, and several niche property types set new records in many countries as a rapid demand rebound blew past the supply of space available. Asset returns surged. Global stock markets gained 20% in 2021 Jacques Gordon - Global Strategist Dan Mahoney - Managing Director

The macro themes in the 2022 edition of LaSalle's Investment Strategy Annual, provide a road map for navigating real estate markets around the world in the years ahead. We focus on five major trends, summarized below. 1. The Endemic Economy In 2022-24, we foresee an economy that continues to recover and generally acts as a tailwind for real estate recovery. The exact timing of the transition from “pandemic” to “endemic” is not known, especially with two new virulent strains (Delta and Omicron) still spreading fast. We are surely getting closer to endemic as vaccination rollouts continue to get traction around the world. This virus does not respect national borders, income, or wealth. In its wake, countries must rebuild economic productivity, relink supply chains, realign social patterns, and recharge spending power. But we are optimistic that this rebuilding will happen. Humanity has learned to live with several endemic diseases before—real estate investors will also. 2. A Higher Standard More is asked of real estate in several different directions all at once. Sustainability (ESG) criteria and rising tenant expectations are among the “asks” that investors must respond to. This raises the bar for putting societal and environmental goals alongside traditional financial targets when investing in real estate. Strong financial performance in 2021 also leads investors to expect “more of the same”. Yet, rising values might make this challenging, unless leverage or other types of carefully considered risk-taking rise too. 3. Rising liquidity and inflation Real estate has shifted from capital-starved to capital-rich several times already in this century. In the last three years, deal flow swung from abundant (2019), to scarcity (2020) and back to abundance (2021). The most recent supply of capital has more than kept pace with the rebound in deal flow. This creates challenges for the deployment of fresh money, even as it boosts the performance of assets already in a portfolio. Rising inflation also raises new issues—favoring some property types more than others. 4. Climate Change The attention given to climate risk is accelerating around the world as more evidence of climate change becomes visible. The impacts of more volatile weather patterns and rising temperatures appear more frequently in the news. The United Nations Climate Change Conference (COP26) in Glasgow in early November was covered extensively by the media. Through shifting public opinion, the political process in many countries is paying closer attention to climate change. Nearly 80% of the world's GDP is produced in countries that have pledged to reduce greenhouse gas (GHG) emissions. The cumulative costs associated with wildfires, flooding, droughts, and high winds continue to rise. In sum, investor will need to factor climate risk analysis into their strategies and execution in the years ahead. 5. Long Run Demand Drivers We review how four secular demand drivers-- demographics, technology, urbanization, and environmental factors -- will continue to shape real estate markets in the years ahead. The progression and shape of these forces change as societies get older and react to each of the global themes. These changes are explored in a series of ISA 2022 “Insight Reports” linked in the text. Many recommendations flow from these various trends. We hope you enjoy reading the entire ISA 2022 report to find them. Jacques Gordon Global Strategist

LaSalle's November 2021 Macro Indicators

Housing Market Meets Policy Headwind: Recent Lessons from Evergrande The story of China's Evergrande Group, one of the country's largest and highly-leveraged developers, continues to develop by the day. As of early October, we see a low probability of systematic risk in the global financial system due to Evergrande's financial troubles. The company's debt problems are likely to be carefully managed by Chinese authorities and have a limited effect on the Chinese financial system and the real estate market. The spillover effect has been limited so far. According to our analysis of the Chinese corporate bond market, there is no evidence of broad-based financial stress in China real estate and other industries. With that said, we expect capital market volatility to increase in the near term.

From Pandemic to Endemic: The Delta Variant Transition As the Delta variant becomes dominant worldwide and forces some countries to reimpose restrictions, we ask a crucial question: What impact on consumer and investor behaviour will COVID-19, and its existing and future variants, have in the long run? The good news is that most experts agree that current vaccines are highly effective against severe disease caused by all known variants of the virus. The links between cases, hospitalisations and mortality have weakened in places with the highest level of vaccinations—such as Singapore, Canada, the UK, Germany, and France. are among the leaders in their rates of fully vaccinated individuals. From the point of view of long-term investors, waves of the virus will diminish as the outlines of the post-pandemic world become clearer. That said, the Delta variant represents a major setback for a speedy return to pre-pandemic “normalcy”. This reinforces our view that some aspects of economic and social behaviour are likely to take longer to recover than many imagined six months ago.

LaSalle's August 2021 Macro Indicators The Rising Threat of Extreme Weather In recent weeks, many records have been broken. We aren't referring to the Tokyo Olympics but to record-setting heat, floods and fires in many parts of the world. Record heat in western North America, record rainfall in Germany and the Benelux countries, and near-record rainfall in Henan Province, China remind us that, as many scientists had predicted, extreme weather events are becoming more intense due to climate change. The pandemic continues to be front-of-mind around the world as COVID-19 variants remain ever-present, in most countries. Rising vaccination levels could allow a phased re-opening of economies and a palpable sense that a return to normal is imminent. At the same time, extreme weather events in recent weeks remind us that the post-COVID world will not be the same as the pre-pandemic one. This will not be the last time that our research team will be reporting on extreme weather and its impact on real estate. We believe that the events of the last two months represent the beginning of a long journey. At LaSalle, we are integrating climate risk analysis into our underwriting and portfolio reviews of managed assets. The research, risk management, and ESG teams at LaSalle have joined forces to bring the latest scientific analysis and projections for future climate change directly to our investment teams. This journey requires an understanding of which risks are covered by insurance or mitigated through physical improvements, and which cannot. This is a journey that all real estate investors must eventually take. Chris Langstaff, Senior Strategist, Canada Dan Mahoney, Senior Strategist, U.S. Jacques Gordon, Global Strategist

The Great Re-opening Gains Momentum The pandemic gave us time to reconsider our lives, our work, our relationships with families, friends, neighbors, and co-workers. It also fundamentally changed how we interact with technology and with our surroundings - in both the natural and built environments. For real estate investors, the pandemic rocked the foundation of the asset class. Yet, as our Mid-Year Update reveals, real estate has generally survived intact, and many markets are thriving in novel ways. Finally, the pandemic raised awareness for the possibilities for creating societal benefits through investment in low-carbon assets and in healthy, diverse communities.

Inflationary Pressure is Building Real estate's reputation for inflation protection will be tested in the months to come. Several different types of inflation have already climbed into view: Asset price inflation came first, followed by a spike in building material and energy costs. Next in line are labour and housing costs, and a broad range of consumer and producer prices that are all experiencing inflationary pressures in 2021. At this stage in the re-opening of economies, inflation is still a good news story as a wide range of markets are responding to surging demand. The risks and opportunities associated with inflation are more subtle, as we describe in our June macro indicators deck.

Taxing Times Call For Taxing Measures Taxation is typically a national or local issue, not a global one. However, the runaway success of technology companies and, in recent years, online retailers has elevated the topic to the international arena. The pandemic has increased tech companies' market-leading positions, as locked-down households and businesses availed themselves of on-line products and services. Many of these companies have a vast store of highly scalable intellectual capital, which can be “relocated” to whichever jurisdiction taxes it the least. Or to put it another way, when most of a business lives in “the cloud” how do you tax it?

Opening Days Narrator: Richard Kleinman, Head of Americas Research The April edition of the Macro deck includes more optimistic signs than many of our previous statistical summaries of the past year. Perhaps this sense of optimism is in part driven by the fact many of the contributors to this Macro deck live in Chicago, where flowers are emerging after a rough winter and vaccinations will reportedly soon be available to everyone later this month. Whatever the exact factors may be, the building optimism about the expected re-opening later this summer is palpable and exhilarating.

Learning from Asia Pacific Narrated by: Elysia Tse, Head of Research & Strategy (Asia Pacific) and Dennis Wong, Senior Strategist (Asia Pacific)

Year of the Ox, Year of the Vax Narrated by: Dominic Silman, Data Strategist and Brian Klinksiek, Head of European Research and Global Portfolio Strategies February 12th marks the beginning of the Year of the Ox in the Lunar Calendar. In Chinese culture, Oxen are known for diligence, dependability, and determination. These are traits we will all need to rely on in the coming months while vaccine deployment proceeds at an ox-like pace. As we enter February, the depths of winter in the northern hemisphere, the pandemic shadow is once again darkening much of Europe and North America, and a weary populace may be forgiven a dream of spring. In economics, dreams like this are referred to as “rational expectations” since current views of future conditions underpin human behaviour in markets and society at large. Rational expectations theory plays an important role in understanding many macro-economic situations. How might this approach apply to the pandemic and epidemiological data? Although we are not experts in virology, we would like to share our analysis of pandemic data that points toward connections to economies and property markets.

LaSalle Research - Narrators: Jacques Gordon, Global Head of Research & Strategy and Dan Mahoney, Managing Director &Investment Strategist Our January Macro Indicators deck provides a summary of relative real estate performance in 2020 and an update on the pandemic, vaccine, and financial market indicators likely to drive real estate demand and pricing in 2021. The tug of war between long- and short-term drivers is itself driven by expectations for permanent vs. temporary pandemic impacts. These expectations will drive movements in the yields, prices, and indices we track each month. These macro themes are also the focus of the 2021 edition of the Investment Strategy Annual (ISA). We highlight five key ISA themes for real estate investment in this Macro Indicators deck: Expect the dispersion of sector returns to continue Invest in the rise of alternatives Anticipate changing mobility and density preferences Differentiate and separate permanent changes from temporary shifts Balance three styles: growth, income, and dislocation

ISA 2021 The macroeconomic, political, and social outlook that sets the stage for investment plans and strong performance are the focus of the Investment Strategy Annual. The pandemic and the ensuing global recession raise the importance and difficulty of these tasks. Even as vaccine distribution gets underway, it will be many months before inoculations are readily available to the general public and economies are restored to their prior strength. During this COVID-19 end game, our advice to investors is to focus on these five themes: 1. Expect the dispersion of returns to continue 2. Invest in the rise of alternatives 3. Anticipate changing mobility and density preferences 4. Differentiate and separate permanent changes from temporary shifts 5. Balance three styles: growth, income, and dislocation Jacques Gordon Global Strategist LaSalle Investment Management

LaSalle Research - Narrators: Brian Klinksiek, Head of European Research and Global Portfolio Strategies and Simon Marx, Head of UK Research & Strategy

LaSalle Research - Narrator: Jacques Gordon, Global Head of Research and Strategy

LaSalle Research - Narrator: Rich Kleinman, Head of Research and Strategy, US

Rich Kleinman Head of Research and Strategy, US