Americas Watch - August 2018
The first half of 2018 has been chockablock with economic news – 4.1% GDP growth in Q2, 1.3 million new jobs, sub-4% unemployment rate, tough Trump tariff threats – the list goes on. Fiscal stimulus – tax cuts this year and increased government spending next year – and still-accommodative monetary policy are supporting strong GDP growth and will continue to do so through the next several quarters. The labor market added 21% more jobs in H1 2018 than H1 2017. Wages are making gains as well, and it is no surprise then that confidence is hitting new highs as consumers and businesses enjoy tax cuts and shake off years of economic unease and uncertainty. What this has meant for CRE performance has been stability and continued improvement in market fundamentals. Occupancies rose through the H1 2018 for all property types except apartments. Yes, even the retail sector eked out an increase after a rather dismal showing in 2017. The ramping up of new supply in all sectors except retail is undoubtedly moderating the pace of rent growth, but it remains positive for all sectors, with industrial leading the pack. Although investors are sensitive to interest rate movements that have taken on a new urgency in the last six months, they remain keen on the solid income-producing outlook for the CRE sector.
Europe Watch - August 2018
Throw away the detailed forecasting model; Europe’s seasons have been the best leading indicator of economic growth so far in 2018. Winter hail and the resurfacing of trade wars washed away most of the momentum Europe carried into the year. Spring brought back stability with both soft and hard data seemingly finding a floor. Currently, a European heatwave is in place across the continent. Does it suggest that economic growth is heating up? Perhaps. In an unexpected summer romance, U.S. President Donald Trump and European Commission President Jean-Claude Juncker agreed in late July to bury the trade war hatchet. Ignoring that the deal is extremely vague and President Trump has previously rescinded similar vocal agreements, it potentially pulls the EU away from the cliff-edge scenario of a full-blown trade war and reintroduces some much-needed positivity. Spurred on by the sunshine, Eurozone PMI figures, which are leading indicators for economic growth, made their first monthly advancement in June having fallen since January. Autumn is just around the corner, and meteorologists, much like economists, are uncertain as to how it will play out. European growth is likely to continue to make up some of the ground lost in H1 2018, but key risks remain.
Asia Pacific Watch - August 2018
We have often given client recommendations which specify the “targeting of low vacancy or falling vacancy submarkets.” But which exactly are these? Of the more than 50 markets (city-sector combinations) that we formally forecast in APAC, the vast majority currently have single-digit vacancy rates and a growing number of them have been enjoying sub-3% vacancy rates in the past year or more. Of course, we have frequently noted as well that record low yields prevail in nearly all of them, making them expensive places in which to acquire assets. But as suggested in our market forecasting, we think that rental growth going forward will actually be quite modest inspite of the tight space market conditions currently, although some specific submarkets will well outperform their wider metros. Modest overall rental growth is expected because on an absolute basis, rent levels in some APAC cities already rank among the most expensive in the world, and caution is being exercised by many occupiers given the multitude of risks in the global economy. New more flexible and more efficient ways of using space and disruptors to conventional ways of using real estate are also limiting the type of rental growth that we would normally see when vacancy rates fall to such low levels.
Combined Watch Link