When will the tide turn on UK commercial property? This depends, of course, on what you mean by the tide.


The Economy?


If by tide, you mean the economy, then the answer is: “not anytime soon”. The global economy in general is going through an expansionary phase. Forecasts show that this is likely to continue for some time. Given the ongoing impacts of quantitative easing and the new phenomenal fiscal stimulus that is being undertaken in the US, the forecasts may understate the eventual outcome. World growth is expected to average 2.8% pa over the next five years, with the BRICs economies averaging 5.1% pa and the advanced economies at 1.8% pa.


Capital Availability?


If by tide, you mean the availability of global capital to support property investment, then the answer is also: “not anytime soon”. Global capital remains at staggering heights, partly the result of increased asset values, but also the result of demographically driven net inflows of new funds. In 2017, assets under management by the top 400 global institutions topped the $70tn mark (IPE). Global demographics data shows that global retirees will continue to contribute to a global savings glut for another generation and certainly to the end of the next decade.


Fund allocations to property?


If by tide, you mean fund allocations to commercial property, then the answer is a more modest: “not yet”. Allocations have risen from 8.9% in 2013 to 10.1% in 2017 and are forecast to reach 10.3% in 2018 (Hodes Weill & Associates). Simple


arithmetic shows that a 1% increase equals $700 billion, or roughly half of the $1.4tn annual property investment market. The allocation tide may not yet be turning, but the rise may be slowing.


The Financial Environment?


If by tide, however, you mean a sea change in the financial environment, then recent events suggest an emphatic: “probably”; and if you think this environment can change and not impact global property investment, think again!


Global interest rates and bond yields may have reached the end of a 36-year bull market that has seen phenomenal yield compression. Real ten-year yield percentages have been negative in several countries.


These low yields have supported asset prices across all asset classes, including equities and real estate, through its impact on fund investment allocations. Likewise, the cost of debt has been driven to very low levels. Consequently, real estate yields have been driven down to extremely low levels globally. Given the recent financial market movements, the question is, perhaps, not so much when will the financial tide turn, but what will the ‘new normal’ look like, when will it arrive and what will the transition be like? As far as the tides turning on commercial property, the question has to do with whether a long period of yield compression has come to an end given the shift in the financial environment.


4


When will the tide turn on commercial property? MIPIM 2018 | Colliers International


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16