Americas Watch - August 2017
Seven months into the year as midyear data starts to roll in for property market fundamentals and capital markets, it is a good time to take stock. For forecasters like us, it is a chance to course correct. How close were we on what we thought 2017 was going to turn out to be? Do we need to re-think 2018? So far, the big takeaway is that the “Trump Bump” in leasing that we expected to see in the office sector has not materialized. In fact, it has been quite underwhelming. The improvement in the apartment sector is marginally better than but not quite as robust as expected. The retail sector also continues to struggle, but then again expectations were low to begin with. The only major sector to stay on track and perform at a high level remains the industrial sector that is reaping the benefits of changing technology and shifts in consumer behavior. Although transaction volumes are not quite where they were a year ago, cap rates and pricing are holding steady. Investors are approaching the sector with caution as the cycle matures.
Europe Watch - August 2017
Recent sentiment data suggest that Continental Europe is currently enjoying its most robust and broad-based economic activity since 2007. Amidst the noise surrounding Brexit, rising populism and increasing global uncertainty, Continental Europe has quietly staged an economic comeback. Support for populism across Europe seems to have halted for now. In June, the French electorate handed newly elected President Emmanuel Macron a strong mandate to proceed with promised economic reforms. In Germany, polls indicate that sitting Chancellor Angela Merkel will retain her position in September’s parliamentary election. Although political uncertainty is fading, Europe still face several challenges. Pressure on consumer prices remains fairly subdued which is decisive for when the ECB starts rolling back quantitative easing and normalizing interest rates. This is confirmed by ECB President Mario Draghi’s announcement on July 20th, indicating a measured and gradual approach to normalization. Financial conditions are therefore expected to remain accommodative in the short term and support the current positive economic environment.
Asia Pacific Watch - August 2017
The APAC lodging sector recorded strong growth momentum in 2016 and this has been sustained through 2017. In addition to continued appetite for key city hotels, investors have been expanding their focus to second-tier markets in search of higher yielding opportunities. Hotel sector initial yields were back to pre-GFC levels in 2016. Investors have displayed significant appetite for such opportunities in those markets with strong domestic and international visitation fundamentals, despite relatively sharp pricing. Australia has been active with a number of sizable transactions in Sydney and Melbourne. Given the low interest rate environment, sound economic growth outlook and the weaker AUD, transaction activity is expected to continue provided stock can be sourced. Hotel pricing is high in Japan reflecting strong investor demand, the nation’s zero interest rate policy and the likelihood of surging international arrivals in the lead-up to, and during, the 2020 Summer Olympics. In emerging markets – notably China – middle class expansion is allowing a domestic travel culture to develop and this benefits certain types of hotels. In the first half of 2017, given the lack of opportunities in APAC gateway cities, hotel investors searched harder, appearing to seek out emerging tourism markets where the long term fundamentals for arrivals growth are strong and the demand-supply balance is not heavily outweighed by new hotel supply.
Combined Watch Link