Sustained low interest rates in 2019 key to upside risk

Investors should be alert to the potential for cyclical growth markets to bounce as the year progresses if the pause in interest rate normalisation is maintained throughout the year, says Cushman & Wakefield.

Growth markets would further be buoyed by “more stability in China, progress on trade talks and of course some resolution to the Brexit mess”, Cushman writes in Global Investment Atlas 2019, which reviews international investment patterns from 2018 and anticipates market performance for the year ahead.

David Hutchings and Carolina Dubanik, the reports authors an EMEA investment strategy team members at Cushman, state:

“Core investors should seek value in major gateway markets. Higher build costs are reducing the potential gains coming from development and also raising affordability issues. This will keep a lid on new supply, and put core rents for existing space under pressure.

“Global investors also need to include Asian gateway cities on their target list, to ensure they are exposed to their more attractive medium-to long term growth trends. For core plus and value add opportunities, there is an attractive yield spread for some secondary markets offering growth and repositioning potential. However, selectivity is key, with a focus on larger gateway submarkets and high-quality challenger cities as well as some decentralised markets. For opportunistic players, selective emerging markets from Vietnam to Brazil and Russia may hold potential.

“There is also scope in more mature markets for developing and redeveloping city centre space, with an emphasis on offices and multi-family albeit in a more mixed-use environment. An increasing premium should be put on placemaking in core, value add and opportunistic strategies. Similarly, platform acquisitions and joint ventures should be a target for cross-border capital across all risk profiles, helping to marry equity with expertise.

“Investors must be alert to the fact that structural forces will be driving areas of outperformance, even as the cycle slows, and therefore there is a real need to look beyond market averages to see the detail of the local market, the deal, the vendor, the lender and above all, the user.”

Four more 2019 themes by Cushman:

  • the logistics revolution is ongoing, and the sector has moved from being an enabler for business to driving business failure or success;
  • niche sectors will play an increasing role in the market and in balancing portfolio performance;
  • globally the office market is perhaps best placed to perform well in the next 1-2 years, as a function of low supply and robust demand; and
  • it may be time to rethink retail, with winners and losers now emerging.

You can download the full report, here.

james.wallace@realassetmedia.com