Americas Watch - February 2017
Mirror, mirror on the wall, which property sector will fairest the best in 2017 of them all? One could be optimistic that office, which saw more tepid conditions in 2016 than in years past, could get a boost in demand from business and consumer confidence, if recent stock market movements are any guide. Apartments are out; the sector, which had been the best performing in this cycle, is likely to face at least moderate headwinds from the supply surge that takes full force this year. Retail will remain a mixed bag, with best-in-class centers garnering the most demand at the expense of more commodity properties. Industrial has impressed for many years, with seemingly unending demand for warehouse space from e-commerce retailers. How much longer can industrial continue to break records? And then there is hotel, whose pace of improvement stalled last year, with supply outpacing demand. While conditions are unlikely to unravel, it is doubtful that gains will be bubbly either.
We all know Snow White is the fairest princess of them all, but amongst the property types who will standeth most tall?
Europe Watch - February 2017
120 years ago, while staying in London and reading a newspaper report of his own death, Mark Twain commented “rumours of my death have been greatly exaggerated.” Sitting in London today, it’s hard not to reach the same conclusion. The UK turned out to be the fastest growing G7 nation in 2016, with Brexit having no discernible impact on the pace of growth. It also remains a full employment economy with robust retail sales growth. This is in line with our pre-Brexit expectation that the sharp devaluation in Sterling would prove a powerful automatic stabilizer and prevent the market falling into outright recession in 2017 – a view we still hold. However, we would also caution against being too sanguine. As we will explore in this Europe Watch, the UK real estate market is certainly experiencing an adjustment in pricing, and weak sterling is altering the make-up and motivation of investors. Moreover, we are still in the “phony war” part of Brexit – where we know it is coming but not what it will look like and therefore what the ultimate impact on real estate markets will be. As the Prime Minister’s rhetoric shifts more toward Hard Brexit (since rebranded as Clean Brexit), we should be mindful of the risk for further Sterling depreciation, volatility and the disruptive impact on the real economy of regulatory uncertainty over the two to three years of negotiation ahead of us.
Asia Pacific Watch - February 2017
In this edition of Asia Pacific Watch we focus on inflation. With Central Banks globally having pushed policy rates so low for so long, global inflation rates still remain at fairly low levels. While inflation rates in developed economies have picked up slightly, there were big drops in the largest and most populous developing economies, particularly China and India. Policy makers fear low inflation rates are hindering the economic recovery. Also, the asset price inflation in the region in recent years contrasts with the weak inflation of consumer prices. Whereas the strong performance of many Asia Pacific real estate markets over the past five years has in large part been boosted by capital value appreciation, an extended period of lower inflation could dampen income growth by discouraging businesses to spend. However given likely U.S. Fed rate increases, some markets in the region may need to tighten rather than loosen monetary policy.
Combined Watch Link