Current economic fundamentals should support further solid real estate performance over the remainder of 2018, according to UBS Asset Management.
The investment manager has launched its mid-year investment outlook entitled Panorama: Mid-Year 2018 – Opportunities in a maturing cycle, that highlights opportunities and risks in a maturing business cycle across a number of asset classes. In the case of real estate, the company believes transaction volumes will remain near long-term averages and that rental growth should remain healthy, particularly in prime locations.
Writing in the report, Paul Guest, UBS Asset Management’s lead real estate strategist, says that positive trends such as above-average consumer spending and business investment growth in Europe, fiscal stimulus in the United States, and an upswing in global trade are all worth noting when assessing real estate’s prospects for the rest of the year. However, he also cautions against complacency, pointing out that “lingering fragilities”, such as anemic consumer spending in Japan, growing credit risks amongst emerging markets, and slow wage growth in the developed economies, should not be ignored when forming a macro view on the market.
Guest says areas such as Singapore and London, which have witnessed strong supply growth, should expect to see further downward rent adjustments this year, but overall, this has been compensated for by very strong levels of demand growth in sectors such as U.S. multifamily residential and global logistics.
“Price gains are now concentrated in the logistics sector, in Europe, and in second-tier cities and countries,” he says. “Looking ahead, we expect investors will continue to find it challenging to put money to work and expect another slight fall in transaction volumes in 2018.
“We expect the remainder of 2018 to be a continuation of the current relative calm. Investors should be reassured that slower appreciation was expected and the transition thus far has happened without market disruption.”
He adds that property values are increasing at about the pace of inflation, as the ultra-low interest rates and faster inbound flows of capital are no longer driving down cap rates.
“Appreciation in the market today relates back to the positive income generated by properties, as opposed to heated capital market conditions. The positive outlook for economic growth reinforces our view that income should continue to grow faster than inflation in 2018.”
The report can be read here: https://www.ubs.com/global/en/asset-management/insights/panorama/panorama-mid-year-2018.html)
