The Global Real Estate Sector has shown a Total Return of +7% YTD for a Sterling investor, compared to -1% for UK Real Estate Sector, or +2% for the FTSE All Share. The major contributor at the time of writing has been the US Real Estate Sector (+11% TR YTD) helped by a strong US dollar and a solid performance from the US REITs in spite of rising interest rates. One of the stand-outs has been the recovery of US mall stocks, benefitting from the Supreme Court ruling in June on the ability of individual States to raise Sales Taxes from on-line retailers even if there is no physical warehouse presence in the State where the goods have been purchased – a very interesting ruling.
Eurozone Real Estate (+6% TR YTD) has also been good to a Sterling investor, helped by a flatter than expected yield curve which has supported the German residential stocks, but there have also been some stand-out performances from Scandi and Spanish stocks. A flat yield curve in Europe is understandable given some disappointment in economic growth (and on-going political instability in Italy), but this looks paradoxical in the US currently benefitting from a strong economy, tax cuts, and near full-employment. The debate is ongoing as to whether this is the deflationary impact of new technology, the growing threat of trade wars or profound changes in labour markets, but to have strong economic growth combined with a low and flat yield curve is a happy combination for US real estate – but then we do have a property developer in the White House! The disruptive tweets may well continue until at least the Mid-Term Elections, but I find it hard to be fully invested in such an extended (8th or 9th innings!) US real estate cycle.
