Allocator Quarterly Q3 2018

This AQ focuses on issues in and around investing in South East European real estate as a means of gaining exposure to strong regional economic growth.

[CITE AQ – Q3 2018]

The world’s attention has been recently captivated with developments coming out of the US, with the
Trump administration resurrecting protectionist trade policies in the face of two decades of increasing
globalization. In Europe, Brexit has been the UK’s response to similar societal issues resulting
from increased inequalities brought on by globalized business value chains. Much ink has been
used in the last few quarters to discuss if and how the UK will leave the EU in a few months’ time.

In the meantime, global growth has returned in force, with European growth also strong in the last
12 months. The quantitative easing measures are being withdrawn in the US, and are also in process
of being scaled back by the ECB in Europe. In the UK, the BOE has equally begun raising interest
rates, to combat inflation, which hit 2.3% in July this year.

As the world economy slowly re-adjusts to life post quantitative easing, investors may re-assess
their expectations of growth in developed markets going forward, with stock market valuations
being close to their historical peaks.

While real estate in the developed markets has been a popular investment choice for many institutional
investors in the last few years, aided by the historically low interest rate environment,
some markets have not yet benefited from the wave of investment that the global real estate asset
class has absorbed since the GFC.

We have recently been looking at the South East European economies, where the real estate asset
class, specifically, still offers healthy yield levels to those investors seeking to benefit from the
strength of regional economies.

We note that the economies of South Eastern Europe, with Romania and Bulgaria being prime examples,
have performed strongly in the last two years, and are expected by the EBRD to continue
topping the European GDP growth tables in the medium term.

We take a bird’s eye view of the macro picture in the region, as well as some of the micro factors related
to reforms and government measures that have been contributing to the strong economic
environment in the region.

We also include an interview with a real estate industry veteran, Tim Norman, who has been investing
in the Central, Eastern and South Eastern Europe for decades. Tim offers a practitioner’s
perspective to investing in real estate in the region and his views on the recent industry developments.

Finally, we take a closer look at the sustainability angle of investing in real estate in South Eastern
Europe. With sustainability being high on the agenda of many professional investors, we believe
that pioneering sustainable development in a region which does not have a history of sustainable
construction, is absolutely critical in achieving investments that should not only provide solid
IRRs to investors, but also make a positive impact on local communities.

We look forward to hearing from many of you if you would like to hear more on any of these topics,
and if they resonate with your organisations.