1

2Source: Federal Reserve Bank Presidents, Federal Open Market Committee

*The central tendency excludes the three highest and three lowest projections for each variable in each year.

Economic ProjectionsOf the Federal Reserve Board members and Bankpresidents, December 2015

MEDIAN CENTRAL TENDENCY*

2015 2016 2017 2018 Longer-Run 2015 2016 2017 2018 Longer-

Run

Change in Real GDP 2.1 2.4 2.2 2.0 2.0 2.0 2.3-2.5 2.0-2.3 1.8-2.2 1.8-2.2

Un-employment Rate 5.0 4.7 4.7 4.7 4.9 5.0 4.6-4.8 4.6-4.8 4.6-5.0 4.8-5.0

PCE inflation 0.4 1.6 1.9 2.0 2.0 0.4 1.2-1.7 1.8-2.0 1.9-2.0 2.0

Core PCE inflation 1.3 1.6 1.9 2.0 1.3 1.5-1.7 1.7-2.0 1.9-2.0

Memo: Projected appropriate policy path

Federal funds rate 0.4 1.4 2.4 3.3 3.5 0.4 0.9-1.4 1.9-3.0 2.9-3.5 3.3-3.5

September projection 0.4 1.4 2.6 3.4 3.5 0.1-0.6 1.1-2.1 2.1-3.4 3.0-3.6 3.3-3.8

3Source: Federal Reserve

0

1

2

3

4

5

6

7

Dec

200

0

Aug

200

2

Apr

200

4

Dec

200

5

Aug

200

7

Apr

200

9

Dec

201

0

Aug

201

2

Apr

201

4

Dec

201

5

Federal Funds Rate, % 10-Year Treasury Yield, %

Worth remembering, the Fed does not control long-term rates

Source: Federal Reserve

0

2

4

6

8

10

12

14

16

Dec

198

1

Oct

198

4

Aug

198

7

Jun

1990

Apr

199

3

Feb

1996

Dec

199

8

Oct

200

1

Aug

200

4

Jun

2007

Apr

201

0

Feb

2013

Dec

201

5

10 Yr. Treasury Yield, %4

And let’s not forget, people who have been predicting long-term rates would rise have generally been wrong for the past 30+ years!

0.5

1

1.5

2

2.5

3

3.5

Jun

2006

Aug

200

7

Oct

200

8

Dec

200

9

Feb

2011

Apr

201

2

Jun

2013

Aug

201

4

Oct

201

5

Core CPI Core PCE

Source: U.S. Bureau of Labor Statistics, U.S. Bureau of Economic Analysis

Fed’s 2% Target

5

There has been very little inflation year-over-year.

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Expected Inflation

Source: Federal Reserve Bank of Cleveland

The market expects inflation to be less than 2% for the next 10 years!The market expects inflation to be less than 2% for the next 10 years!

6

And little change is expected the next 10 years

Global 10-year government bond rates remain historically low, placing little upward pressure on U.S. bond yields

0.31%0.47%

0.78%1.00%

1.41% 1.49%

1.75%

2.22% 2.26%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

Japan Germany France Ireland Italy Spain U.K. U.S. Portugal

Source: Bloomberg 7

1.30%

2.22%

3.80% 3.82%

5.34%5.82%

6.64%7.04%

0%

1%

2%

3%

4%

5%

6%

7%

8%

Global 10-Year Gov't

Bond Yields

U.S. TreasuryBond Yield

Global PrimeCap Rates

U.S.Corporate

Bond (7-year,Baa)

U.S. OfficeCBD

U.S.ApartmentHighrise

U.S. Industrial U.S. OfficeSuburban

8Global Bond Yields: Average of Germany, Japan, France, U.K., Spain, Italy, Hong KongGlobal cap rates: Average of Beijing, Frankfurt, Paris, London, Tokyo, Hong Kong(Global values thru September 2015; U.S. values thru November 2015)Source: Federal Reserve Board, Real Capital Analytics, Cushman & Wakefield Research

154 bps

U.S. Real Estate

And U.S. Cap rates could go lower

9

What does rising rates mean for CRE values?

9

10Source: Federal Reserve, Moody’s Analytics/Real Capital Analytics

0

1

2

3

4

5

6

90100110120130140150160170180190

Aug

200

1

May

200

3

Feb

2005

Nov

200

6

Aug

200

8

May

201

0

Moody's/RCA Commercial Property Price Index Federal Funds Rate, %

Federal funds rate starts rising in July 2004

CRE values rise by 50% over next 3 years

History shows that the last time the Fed raised rates, CRE values increased by 50%

Growth Rate from 2004-2007

MARKET GROWTH RATE MARKET GROWTH RATE

New York 142% Baltimore 37%

Long Island 120% Kansas City 37%

Denver 82% Dallas 26%

Charlotte 73% Sacramento 25%

DC – VA 69% Cincinnati 24%

Los Angeles 61% Atlanta 21%

Phoenix 57% Minneapolis 20%

Orange County 54% St. Louis 19%

San Francisco 53% Boston 18%

East-Bay 53% Chicago 14%

San Diego 50% Houston 10%

Raleigh/Durham 46% Nashville 7%

San Jose 42% DC – MD 4%

Columbus 41% Indianapolis 1%

DC 37%

U.S. Average = 51% 11

Office values soared the last time the Fed raised rates

Source: Real Capital Analytics

MARKET GROWTH RATE MARKET GROWTH RATE

Kansas City 154% San Jose 29%

Columbus 116% St. Louis 25%

Phoenix 111% Denver 24%

Sacramento 90% Indianapolis 23%

Charlotte 62% Nashville 21%

Inland Empire 32% Northern NJ 20%

East Bay 61% Baltimore 12%

Raleigh/Durham 59% San Francisco 11%

Cincinnati 55% DC 11%

Minneapolis 40% DC – VA 2%

Chicago 32% DC – MD 0%

U.S. Average = 38%

12

Growth Rate from 2004-2007

Industrial values also soared the last time the Fed raised rates

Source: Real Capital Analytics

74%

76%

78%

80%

82%

84%

86%

88%

90%

92%

94%

0

1

2

3

4

5

6

7

8

9

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Federal Funds Rate, % U.S. Office Occupancy

Source: Federal Reserve, Cushman & Wakefield Research

When rates rise, so does occupancy…

0%

2%

4%

6%

8%

10%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

1986

1990

1994

1998

2002

2006

2010

2014

NCREIF - All Property Types 10-Year Yield Treasury Yield

Correlation = -0.18 (weak)

Source: NCREIF, Federal Reserve 14

There’s virtually no relationship between rising interest rates and CRE returns

Yr/Yr % Change in the 10-Year Treasury rate vs Unlevered NCREIF Returns

-4%

-2%

0%

2%

4%

6%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

1986

1990

1994

1998

2002

2006

2010

2014

NCREIF - All Property Types GDP

Yr/Yr % Change in Real GDP vs Unlevered NCREIF ReturnsCorrelation = 0.66 (solid)

Source: NCREIF, U.S. Bureau of Economic Analysis 15

Economic growth matters more

0

1

2

3

4

5

6

2007

Q1

2008

Q3

2010

Q1

2011

Q3

2013

Q1

2014

Q3

2016

Q1

2017

Q3

2019

Q1

Federal Funds Rate, % 10-Year Treasury Yield, %

Forecast 2014 2015 2016 2017 2018

Oxford 2.5 2.2 2.6 3.1 3.5

Moody’s 2.5 2.2 3.1 4.1 4.2

NABE 2.5 2.5 3.1 * *

C&W 2.5 2.1 2.6 2.9 3.5

Avg. 2.5 2.3 2.9 3.4 3.7

10-YR RATE BELOW 3% THRU 201610-YR RATE FORECAST COMPARISON

Source: Federal Reserve, Oxford Economics, Moody’s Analytics, NABE, Cushman & Wakefield Research 16

U.S. Interest Rate Forecast

17

Tighter monetary policy does typically signal steps towards the next recession

18

ECB launched QE in March 2015, bond-buying $66B per month; also dropped short-term rates to effectively 0%

EUROZONE

Then again, global monetary policy still simulative

BOJ launched new QE in October of 2014, swelling monetary base by $650 billion per year

JAPAN

PBOC cut interest rates from 4.85% to 4.6% in August 2015– has continued to inject yuan into the economy via liquidity facilities and decreased the required reserve ratio (RRR) at banks. PBOC is currently considering an additional 1.2-1.5 trillion yuan stimulus.

CHINA

Cut interest rates in May to record low of 2%

AUSTRALIA

Central bank reduced its main rate by half a percentage point in October 2015 - citing economy is “far from robust”

INDIA

No guarantee long-term interest rates are going to rise. Inflation is the key metric to watch, not the Fed Funds Rate

If they do rise, that typically means CRE values will also rise (in general) as stronger economic growth drives NOI higher

The bottom line on interest rates & CRE values

If they do rise, value-add is the hot play as it has more upside from improving leasing fundamentals

If they do rise, core assets with long-term leases in place are the most exposed, but then again, no shortage of demand for these assets

20