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Economic Update

Outlook positive for global real estate

The global real estate asset class delivered modestly positive returns in 2017 and similar results are expected for the next 12 months.

“Generally, global real estate investment trusts are trading at a discount to private market net asset values, with some market commentators estimating this by as much as 10 per cent,” Quay Global Investors portfolio manager Justin Blaess said.

“The expected 12-month total return forecast for 2018 is for low double digits, consisting of earnings per share yield of 5 per cent to 6 per cent, and growth of 5 per cent to 6 per cent.

“Locally, despite prophecy of a looming retail apocalypse, retailers in Australia are still employing and there has been no uptick in retail insolvencies.”

Blaess said the Australian dollar is a wildcard in the mix as global real estate returns for Australian investors were negatively affected by a strong local currency in 2017.

However, the rental outlook is still generally positive.

“Global capital is still actively seeking real estate returns and the global macro environment is conducive to this,” he noted.

“In the United States, supply fears are abating and are constrained by tight labour markets and higher funding costs.

“In Europe, markets are earlier in the cycle and so still have a way to run, while in Hong Kong and Singapore the rental cycle is recovering.”

Quay Global Investors is an asset manager of Bennelong Funds Management.

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