Watch Series

Americas Watch - June 2018

The U.S. economy keeps pushing on, but risks are surfacing on the trade and political fronts. National job growth remains steady, wages continue to rise and inflation is finally seeing sustained upward pressure. The upbeat signals are taking consideration at the Federal Reserve, where it is expected that three or four rate hikes will occur between now and the end of the year. Despite the upbeat economic landscape and expected Federal Reserve tightening, headlines revolving around U.S. trade with China and the Eurozone economies along with political tensions in the Eurozone cloud the outlook. The stock market is moderately up year to date but has been moving sideways over the past few weeks as the effect of corporate tax cuts wanes and uncertainty brews over trade and politics. As the year and economy move forward, Wall Street’s reactions toward business investment and performance in response to higher uncertainty must be closely monitored.

Europe Watch - June 2018

It seems that, try as we might, we cannot avoid talking about politics in Europe as Italy’s general elections on the 4th March dealt a blow to those who had hoped that the tide of populist Euroscepticism was finally beginning to ebb. Not so, as following a hung parliament, 55% of the Italian electorate chose Eurosceptic or anti-establishment parties, with the far-right League and the anti-establishment Five Star Movement emerging as the winners. The former rivals had seemingly set aside political differences to form a government together, only for President Mattarella to controversially veto the nomination of the Eurosceptic Paolo Savona as finance minister, leading to the resignation of incoming Prime Minister Conte and plunging the Italian political system into further uncertainty. Meanwhile, 860 km away, political tensions continue to rumble on in Spain following Catalonia’s unilateral declaration of independence in October of last year and now with Prime Minister Mariano Rajoy facing a vote of no confidence, threatening to undermine the Spanish economic recovery. The question that needs to be answered is how will these political risks impact Southern Europe’s real estate markets, which in Spain’s case, had been in the midst of a strong cyclical bounce back. This month’s Europe Watch outlines our thoughts on the subject.
 

Asia Pacific Watch - June 2018

China’s logistics markets are expanding thanks to strong demand from e-commerce and more broadly from the policy shift towards a more domestic-driven, consumption-based growth model than an export-based one. As the on-again, off-again trade-war-of-words with the U.S. administration continues as a potential downside threat to global trade, we are reassured by the size and growth of the consumer base within Asia and in China specifically.  For it is domestic demand which holds strong potential to drive internal, nationwide trade, and in China this potential is particularly strong. Distribution centers and last-mile delivery facilities are the real estate subtypes which are benefitting from the trends of strong consumption and higher propensity to shop online. China’s retail sales more broadly have been holding up well with some USD 5.2 trillion (at current prices) of retail sales recorded in 2017, an increase of 10.2% YoY. Already around a fifth of such sales are through online channels which require the storage of merchandise in logistics facilities. Oxford Economics forecasts an additional 127 million urban residents in China in the next 7 years and expects continued middle class expansion (with households earning USD 35,000 - 70,000 per annum as a share of all households to rise from 16% to 27% by 2025).  Yet only just over half the population currently uses the internet, and so e-commerce growth should continue.  Unsurprisingly, China’s logistics markets have become more highly sought-after investment targets for domestic and foreign capital alike.

 

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