With substantial dry powder targeting real estate, investors will continue to diversify into secondary markets in search of yield. The era of overall yield compression is over, and prime yields will be flat for most of 2019. We forecast an average total return of 5.1% per annum in 2019 and 2.7% for 2020, most of which will be driven by income return.
Weakening global growth means lower long-term interest rates, which will offset slightly weaker investor confidence in the first half of 2019. Cross-border investment—although from different sources than before, as Chinese property companies are substantially reducing outbound investment—will generally continue to boost capital flows, driven by the increased appetite of property companies.
Overall, capital flows will remain strong in 2019, shifting to core investments in diversified markets from more opportunistic assets, as investors seek out better pricing and more stable income growth.
Global Outlook by Sector
Key Takeaway: There are several reasons to be optimistic about the global economy in 2019. Despite the recent volatility in equity markets and negative news flow, consumer and business confidence is high, China is already stimulating economic growth, the U.S. economy remains above trend, and major economies in Europe should perform better, especially if the U.K. comes to an agreement with the EU on Brexit.
Key Takeaway: Investors to move down the risk spectrum for long-term holds and stabilized returns. The era of overall yield compression is over, and we expect stable prime yields and strong capital flows for most of 2019. We forecast a global average total return of 5.1%. Investors will continue to diversify into secondary markets in search of yield.
Key Takeaway: Demand for office space will slow while agile strategies accelerate. Technology companies and flexible space providers will continue to dominate the market. Completions will pick up in EMEA and the Americas, loosening supply-side conditions in some cities, resulting in generally weaker rent growth.
Key Takeaway: Despite stronger consumer fundamentals, retailers will need a winning omnichannel strategy to survive and thrive. Retail stakeholders will need to offer consumers a compelling experience that drives foot traffic and sales. For owners, some hard decisions will have to be made, especially in second and third-tier locations.
Key Takeaway: Industrial & logistics continues to expand and integrate further with retail. The focus on last-mile and city logistics will intensify in 2019. With consumers expecting even faster delivery times, there is a shortage of infill sites for last-mile delivery, prompting developers to build vertically, with markets like Seattle, New York, London and Paris leading the way.
Key Takeaway: Steady multifamily demand continues to drive up rents, attracting sustained investment. Investment activity in 2019 will come close to peak volumes achieved in recent years, with the forecast exceeding US$150 billion for the year. Rising home sales prices will continue to curtail renters’ ability to move into homeownership.
Key Takeaway: Structural economic and technological forces will support continued growth in alternative property sectors in 2019. Sectors such as seniors housing, health care and student housing are projected to provide more opportunities, though options vary significantly by region.