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Headwinds and tailwinds: Navigating the potential transition to different conditions for property markets worldwide
Real estate markets worldwide are generally in a good place. In nautical terms, for much of the past decade we have appeared to be sailing on calm seas, with a fair wind behind us. Occasional squalls have appeared in one country or another, and from time to time storms became visible on the horizon, but for the most part these have blown off at a safe distance. How long can these conditions last?
Where is the fair wind coming from? Synchronised global economic growth is supporting real estate demand, and supply remains modest in most markets. How about the calm seas? The level of leverage and the cost of debt both remain low by historic standards. Yes, real estate yields/cap rates are at, or close to, historic lows, but the spread between those yields/cap rates and long-term government bond yields, although it has eroded somewhat in recent months, is still mostly within normal historical ranges, as at March 2018. So in these generally-favourable sailing conditions, what is th