The global listed real estate sector
In 2017 the FTSE EPRA NAREIT Global Index showed a total return of 5% for a sterling investor, although currencies were again a big factor (e.g. for a US$ investor the global total return was a healthy 15%). The main underperformer was the Americas (-4%, making up nearly half the Global Index). The star performers were emerging markets at 39% (with China nearly half this index), Asia Pacific (ex Japan) at 29% and the Eurozone at 22%. Perhaps surprisingly the UK sector showed a credible 13% helped towards the year end by hopes of a ‘soft Brexit’ and M&A.
The US underperformance was not a surprise given the high US REIT ratings combined with the prospect of rising bond yields and interest rates. In addition, the structural problems of the mall sector continued to weigh heavily, in spite of the bid for General Growth by Brookfield. The strong economy is however a boost for office markets (although supply now coming through), multi-family residential and logistics, and at the start of 2018 the US REIT ratings are relatively more attractive than a year ago. The big question for this year is the likely trajectory of US interest rates. The Fed has signalled 3 rate rises to come, but the market would appear more sanguine in spite of the major tax cuts and a new Fed chair about to make his mark. The dilemma for investors is that the stocks with the best growth prospects tend to be the more interest rate sensitive.