The real estate industry appears unfazed by clouds on the horizon in the shape of a weakening global economy, looming Brexit and escalating US-China trade wars, writes editor-in-chief Robin Marriott.
My colleague Dominic Gover has been looking into the listed property sector for the September issue.
There has been a 10% bounce-back in total returns for Europe’s quoted property sector so far in 2019, and some of you out there have been wondering why.
Is this a correction to an over-reaction on the downside in the latter stages of 2018? Is it a reflection of interest rates staying lower? Is it about the health of real estate fundamentals, or linked to bond markets where some amazing things have occurred? Could a partial explanation even be that the Japanese pulled funds out of European property stocks at the end of 2018 and folk arrived back at their desks in January feeling bullish?
It is an interesting question to be asking at a time when there are some concerns out there about the direction global economies are heading, a debate especially triggered by the inverted bond yields witnessed in August. First, America’s 10-year Treasury yield fell below the two-year Treasury return; then the yield on 30-year US government bonds fell below 2% for the first time. (For analysis on inverted yields and the feeling on the ground in real estate, see page 46).
I have recognised for a long time that real estate investment professionals are eternally optimistic. With some exceptions, the default option is to say there is nothing to worry about. It does not seem to matter whether there are inverted bond yields pointing to dark clouds on the horizon, a potential UK recession, US-China trade wars, Brexit, weak inflation, or overall declining real estate investment volume, and so forth. Real estate people are champions of their asset class.
A case in point is BNP Paribas Real Estate, which published its European Property Prospects report in August. It has a paragraph entitled: ‘A global slowdown but nothing to worry about’.
Although the bullish trend of the European real estate market appears to be heading for a slower pace, the report points to the good fundamentals on the occupier and investment side, allowing us to put things into perspective. Uncertain global outlook? Yes. But we have employment growth, plus disposable income and retail sales should remain positive across Europe. The major challenge, it summarises, is the ability of investors to create value in a low interest rate environment.