VENDREDI 26 NOVEMBRE 2021 BIZWEEK ÉDITION 370 Global : real estate total returns by sector%. year on year change in total return Index 16 14 12 10 2 6 4 2 À a 2022 2022 - 2026 À Pre-pandernic 0 I Indusinal ResidentialAli property Office Relail Hotel Source : Oxford EconorniceMSC I A POST SCRIPTUM RESEARCH BRIEFING The global real estate bounce will extend into 2022 After bouncing back from the pandemic in 2021, global real estate will likely have another strong year in 2022 – Oxford Economics expects returns of 8%. Despite disruptions in product and labour markets and isolated covid outbreaks, economic activity and employment growth will continue at pace, driving global real estate returns Despite a softening of global GDP growth in Q3, the recovery looks set to bounce back in Q4 and continue into 2022. With an overall improving health situation globally and tentative signs that supply constraints may be abating, we expect growth to strengthen from here even if it doesn’t hit the heights of H2 2020. A continued relaxation of restrictions globally is crucial to the ongoing recovery as it allows spending to be diverted toward services and away from durable goods. This should help to alleviate much of the pressure on global supply chains. But it is also crucial to broadening out the recovery in real estate returns to sectors beyond industrials. Industrial properties lead the way Still, we think it will take time for the pattern of consumption to fully rotate back to something like a normal split between durable goods and services spending. Consequently, global industrial real estate returns are set to lead the recovery in 2022 at just over 14%, particularly as distribution centres and urban logistics will benefit and manufacturing more generally should expand rapidly to keepup with demand. Global investor demand for residential properties in 2022 is expected to sustain yield compression, generating another strong year for returns. The defensive characteristics of the residential sector, combined with the long-termdemand drivers of urbanisation, smaller households, and affordability constraints on home ownership will continue to attract capital. We estimate global residential returns of 8.6% in 2022, similar to 2021 and the highest since 2015. Office and retail returns have suffered much more than industrial and residential in the pandemic, but looking ahead we expect the gap to start narrowing. Returns of 6.6% and 5.9% in 2022 respectively, while still lagging, will represent a big improvement on 2020 and 2021 (particularly for retail). However, downside risks still exist – not least from the recent reimposition of covid-related restrictions and enforced homeworking in parts of continental Europe. Looking further ahead there is a clear distinction to be made between the two sectors. Office returns are set to weaken in the medium termas interest rates rise and as sustainability and hybrid working polarise the market. However, we continue to believethat cities will remain very much ‘alive’. At the same time, we expect modest strengthening in retail returns over the next five years. We believethat the long-run shift to online retail will endure (hence the strong expected industrial returns), but equally the correction in the retail sector combined with the boom in industrial and residential has generated more repurposing opportunities, while the resilient performance of retail parks and supermarkets during the pandemic has lifted demand for these assets. We expect returns to average 6% over the next 5 years, well below the pre-pandemic average of over 8%. The hotel and leisure sector returns have clearly been most damaged by the pandemic, falling more than 5% in 2020 alone. We expect the sector to continue to makeup ground in 2022, but with business travel lagging the recovery, the 5.2% returns we expect this year are still below the pre pandemic average. While 2023 will see the peak in post pandemic returns, the mediumtermoutlook remains subdued. North America leads the recovery Our macro thesis that this global recovery will be one of the most uneven by historical standards extends to our real estate views. On an absolute basis, North American property returns will lead the way. returning 9%. This is 1ppt more than the global average and more than 2ppts more than APAC. However, relative to the pre-pandemic period, European property returns are actually the star performer. We don’t expect European returns to be strong on an absolute basis (8.3%), but rather the combination of lower interest rates and more « catchup » growth in activity and employment should mean the outlook is relatively good. Interest rate risks give way to stagnation The current surge in inflation represents a risk to the immediate outlook. First, the rise in energy prices and supply chain disruption will weigh on activity and employment, directly lowering real estate returns. Second, if central banks react by significantly raising interest rates, this will lower capital returns. Overall, our modelling shows this would only dent our returns projections, as the impact of a rate rise would be smalland potentially reversed if our view of underlying inflation is correct and disinflationary forces are set to reassert themselves next year. Beyond the near term, we think the chances of moving to a new inflation regime are still small. Instead, we are likely still stuck in a secular stagnationlight equilibrium. That stagnation and modestly rising interest rates is reflected in our underwhelming total return forecasts. [Source : Oxford Economics – 23 November 2021] 6 |
