COMMENT It’s all too easy to get caught up in domestic dynamics and lose sight of the global, macro picture. It’s important to take a step back.
I’m not talking politics, and its market impact, important though that is. I’m talking about investment and occupational drivers around the world. Some have already impacted on UK markets, others will. Still others might offer opportunity.
With many investors necessarily embracing Q4 syndrome and scrambling to complete deals before year end, bid shortlists are growing longer. For the two and a half years since the pound’s post-referendum devaluation, domestic investors have found it harder to compete with inbound capital. Curbs on investors have slowed outbound investment from China, but other countries have more than filled the gap.
But don’t think this is just a UK phenomenon, as the latest global real estate outlook from UBS makes clear. Across Europe, investment from Hong Kong and China has more than halved over the past 12 months. South Korean investors, an increasingly familiar sight in London, have around €7bn of investment either completed or under contract.
Neither is it just Europe feeling the effects. Chinese investors unloaded more than $1bn of US real estate in Q3 alone, according to Real Capital Analytics. It was the second successive quarter of disinvestment, something that had not happened since 2008.
The threat of a US trade war with China has spooked equity markets around the world. Eurozone economies have slowed. And the crisis afflicting retail is international, though worse in the UK where online shopping is so strong. (It was only this week, for instance, that Amazon celebrated its first birthday in Australia.)
Good news
Good news travels too. Stable underlying activity in the office sector has been a common story in most major markets. Global industrial investment volumes have been strong around the world – in 2017 they rose by 20% in the UK, 13% in the US and 12% in the eurozone, UBS says.
The bank expects double-digit growth in each market in 2018 and continued outperformance in the near term. The sector is at the top table when it comes to investor allocations. “Global industrial investment volumes have reached near parity with retail, having been nearly 40% below them as recently as mid-2017,” says the UBS report.
Overall, in the first nine months of 2018, global investment volumes for income-producing real estate assets were up by 2.6%. But growth in advanced economies is likely to slow next year. And UBS sees a positive outlook for only industrial and multifamily investments in Germany; other asset classes and geographies are expected to be stable at best.
Any slowdown is likely to prompt government intervention, which could add to instability. And with yield compression in Europe driven in no small part by industrial’s strength, the risk of correction in that sector heightens risk further. With the UK government – and others – considering an “Amazon tax”, those risks could conspire.
There’s an important caveat though. The past two years have surprised on the upside, retail aside. Be cautious, but don’t be gloomy. And think macro, not micro.
To send feedback, e-mail damian.wild@egi.co.uk or tweet @DamianWild or @estatesgazette
