Watch Series

Americas Watch - September 2017 

The latest Moody’s Analytics estimate for the damage caused by Hurricane Harvey is between $86 billion and $108 billion, making it the costliest disaster in U.S. history. The full extent of the damage done to the Houston area economy has yet to be seen given the extensive and widespread flood damage. While the cost of Hurricane Harvey will take a large toll on the Houston regional economy, its macroeconomic impact nationally will likely be modest and temporary. Gasoline prices rose to a two-year high as a result of the disruption to refineries along the Gulf Coast but have since retreated. The Port of Houston has reopened with only minor damage to the shipping hub’s terminals. While the destruction caused by the hurricane will not be directly accounted for in the GDP calculation, the eventual anticipated increase in consumer spending, supported by government aid and insurance payments as well as the rebuilding of damaged structures, has the potential to be at least a short-term stimulus to growth in Houston.

Going into the final months of 2017, it appears as though the U.S. economy remains on solid footing. Consumer confidence is at peak levels, while job gains maintain a steady pace, approaching full employment. Pricing in both the residential and commercial real estate markets remains fairly firm, and mortgage lending has picked up through midyear. Most signs indicate that the U.S. economy is sound. Yet, the seemingly Phillips-curve-defying inflation rate has Fed officials wringing their hands on whether to raise rates a third time this year and to initiate the unwinding of its unprecedented balance sheet.

 

Europe Watch - September 2017

For those of us visiting countries within the Eurozone for our summer vacations, from the U.S. or UK in particular, the exchange rates on offer when purchasing our spending money have been a stark reminder of how well the Eurozone economies have been performing in 2017. And while this performance does deserve attention, as in our recent report ‘Welcome to the Euroboom,’ we should not overlook the ongoing strength of some of the European countries outside of the currency bloc. In this month’s Europe Watch we take the opportunity to look at current economic and real estate market conditions in the Czech Republic, Hungary and Poland. There are some, mainly political, reasons for caution, most notably policy uncertainty being generated by the PiS government in Poland. Despite this, growth continues apace across the region, and near-term forecasts are being revised upwards. These countries have benefitted disproportionately from the upswing in global demand and are being further aided by supportive fiscal policy but to various extents are now facing capacity constraints. Tight labour markets are now driving rapid wage increases, and consequently consumer spending has been a key driver of growth across the region. This is clearly a positive for retail property but also suggests that growth may start to cool over the coming years.

 

Asia Pacific Watch - September 2017

This month’s Watch report overviews the Hong Kong logistics market. Hong Kong is a major distribution hub for the regional and global economy, not to mention a point of consumption for almost 8 million residents and 65 million tourists who visit each year. With one of the world’s largest cargo airports, a seaport which handles the fifth largest volume of container traffic globally and an increasing number of rail and road links being built to improve connectivity to China and Macau, Hong Kong’s infrastructure is critical to its competitiveness in logistics.  Its advanced human resources, customs laws and IT systems are key variables in its success as well. Its logistics real estate also plays an important role.  Demand-side indicators are solid, albeit decelerating from long-term average growth levels.  But it is the supply side – hardly any construction is underway or planned – which appears very muted in the next five years and should thus push an already low vacancy rate of 3.3% even lower. Notwithstanding these positive supply-demand fundamentals, Hong Kong has among the world’s lowest yields, and given that its currency is pegged to the USD and in light of the forecast Federal Reserve rate hikes, upward pressure will be placed on yields. After a 10-year historic average annual total return (unlevered) of 19%, Hong Kong logistics is expected to have returns that moderate considerably in the coming five-year period.

 

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