Real estate resilient against uncertain backdrop

7th May, 2024 | No Comments

There are many strong investment opportunities in commercial real estate but investors need to work harder for their returns, according to property investment analyst Benjamin Martin-Henry, Head of Real Assets Research Pacific at MSCI, speaking at the recent Property Funds Association of Australia (PFA) 2024 national conference at the Gold Coast.

He said that real estate is showing resilience while the global economy dealt with several challenges and widespread uncertainty. “Real estate shines in uncertain times such as these due to its potential for relative stability via leases.

“But the opportunities are not uniform in the way they used to be. Even just a few years ago we would see all the major real estate sectors move together.

“The major sectors don’t move in sync anymore. Currently, office property is facing some issues while retail is doing very well, and industrial property is mixed.

“There are also alternative property sectors which are doing well such as student housing and data centres.”

Mr Martin-Henry said investing through economic uncertainty is currently a fact of life. “There are some challenges in the global economy, and people are split on key forecasts such as whether the next interest rate rise is up or down, or where next for bond rates.

“There is a particularly wide spread between cash rate forecasts, which suggests no-one really knows what the next movement will be.

“The question is what will happen with interest rates elevated over the next 18 months to two years?

“Investors in particular don’t like uncertainty. But it’s just unavoidable at present due to geopolitical risks, sticky inflation, and other issues including global trade.”

Mr Martin-Henry said there are several economic positives which should influence commercial real estate investment. “There is resilience in the major economies. Inflation is moderating, which is good news, but it is going to be a bit stubborn due to ongoing challenges with things like supply chains and the oil price.

“Financial conditions are improving. In Australia, population growth is pretty much on its long-term trend, which is supporting the economy and helping to keep our economy ticking over.”

He said that over the longer term there are significant economic benefits which come from the transition to cleaner energy, and eventually net zero. “There’s a lot of talk about the cost, but you can make significant money from transitioning to net zero.

“There is increasing evidence that the benefits of accelerating climate transition outweigh the costs, including forecasts that global GDP can grow seven per cent higher resulting from an orderly transition to net zero by 2050.”

Martin-Henry also said there is plenty of evidence that the property market can still perform during periods of economic stress. “Real estate is pretty resilient. Sure, we’ve seen issues in the office sector, but we’ve seen pick-up in retail, and things like student accommodation, seniors living, and the residential sector via the emergence of build-to-rent.

“Investors need to work harder than before. The times when you could just allocate broadly to property and expect to do well seem to be over.

“But there are currently many good opportunities to invest in commercial real estate and investors who do their homework have potential to do well.”

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