Head of Global Property Securities, Stephen Hayes, shares his outlook for office, retail, hotels and residential markets heading into 2018.

With an improving global economic back drop and falling unemployment rates in most developed countries, the outlook for continued high occupancy rates for investment grade real estate is encouraging. The low interest rate environment has seen private market values elevated. While supply is increasing in some markets, developers and landlords can still make new developments pencil. In most markets, strong tenant demand combined with new supply is resulting in market equilibrium. Moderate rental market growth and high occupancy rates are supportive of secure cash flow growth. Interest rates are expected to moderately rise in 2018, which may cause some short term volatility in the sector, but overall we do not believe moderate rate rises will materially impact valuations.

Within the United States, the outlook for the single family rental sector (freestanding housing) is expected to remain healthy with tax reform likely and moderately rising interest rates. Hotels should also benefit from the improving economy and increased corporate spend. The West Coast office markets should also continue to benefit from the strong employment growth.

Within Europe, the Madrid and Paris office markets are set to tighten as market vacancy rates fall to low levels, with market rental growth looking to increase. The German housing markets are also well placed for continued cash flow, particularly Berlin. 

Economic growth in the United Kingdom is expected to continue to slow in 2018 as decision-making is halted until the final BREXIT deal is known. The London office market is likely to experience a slight increase in vacancy rates. Retail sales are likely to remain subdued due to imported inflation impacting household finances. 

The improving Japanese economy is expected to continue to support the Tokyo office market with strong tenant demand outstripping supply with market vacancy rates to remain low. The Singapore and Hong Kong property markets are also likely to remain well placed into 2018, as their economies are supported by improving global trade.


Important Information

This material has been prepared and issued by First Sentier Investors (Australia) IM Ltd (ABN 89 114 194 311, AFSL 289017) (Author). The Author forms part of First Sentier Investors, a global asset management business. First Sentier Investors is ultimately owned by Mitsubishi UFJ Financial Group, Inc (MUFG), a global financial group. A copy of the Financial Services Guide for the Author is available from First Sentier Investors on its website.

This material contains general information only. It is not intended to provide you with financial product advice and does not take into account your objectives, financial situation or needs. Before making an investment decision you should consider, with a financial advisor, whether this information is appropriate in light of your investment needs, objectives and financial situation. Any opinions expressed in this material are the opinions of the Author only and are subject to change without notice. Such opinions are not a recommendation to hold, purchase or sell a particular financial product and may not include all of the information needed to make an investment decision in relation to such a financial product.

CFSIL is a subsidiary of the Commonwealth Bank of Australia (Bank). First Sentier Investors was acquired by MUFG on 2 August 2019 and is now financially and legally independent from the Bank. The Author, MUFG, the Bank and their respective affiliates do not guarantee the performance of the Fund(s) or the repayment of capital by the Fund(s). Investments in the Fund(s) are not deposits or other liabilities of MUFG, the Bank nor their respective affiliates and investment-type products are subject to investment risk including loss of income and capital invested.

To the extent permitted by law, no liability is accepted by MUFG, the Author, the Bank nor their affiliates for any loss or damage as a result of any reliance on this material. This material contains, or is based upon, information that the Author believes to be accurate and reliable, however neither the Author, MUFG, the Bank nor their respective affiliates offer any warranty that it contains no factual errors. No part of this material may be reproduced or transmitted in any form or by any means without the prior written consent of the Author.

In Australia, ‘Colonial’, ‘CFS’ and ‘Colonial First State’ are trade marks of Colonial Holding Company Limited and ‘Colonial First State Investments’ is a trade mark of the Bank and all of these trade marks are used by First Sentier Investors under licence.