Publications

- December 1, 2018: Vol. 12, Number 11

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Everything in moderation: Learning from the mistakes of past excess

by Maurizio Grilli

It is widely believed that rental growth and yield shifts can only be understood within a well-defined macro-economic model. As a strategist, my predictions will only be as good as my interpretation of the underlying economic dynamics.

There is a plethora of other things that affect my ability to get it right ­— or not too wrong. These include capital market dynamics and the overall impact of macro-trends. Nevertheless, the link between real estate markets and economics is always of primary importance.

Standard economics typically links property performance to GDP growth via “derived demand”. Assets are highly sought after because they contribute to the production of goods and services. As production rises, so does demand, which fuels price rises. However, macro-economic influences on real estate are much more widespread than this. They have an effect on interest rate levels and, most importantly, the market discount rate. For example, a favourable economic cycl

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