– Global Real Estate Sector robust in 2018
– Fed policy will drive equity markets in 2019, including Real Estate
– UK performance hit by Brexit and structural change in UK Retail
The Global Real Estate Sector showed a Total Return in 2018 of +0.3% to a Sterling investor, compared to -3.4% for Global Equities, and -9.5% for the FT All Share. Support came from the Americas at +1.8%, in spite of volatility in Q4, and a strong US dollar. The significant tax breaks, although not directly benefiting US REITs, had a positive impact on the economy – so that while a year ago there was concern about impending new supply, tenant demand has largely absorbed this.
The strength of the US dollar, combined with Trade Wars and a slow-down in China, impacted Emerging Markets (-6%), although not so much Asia-Pacific (+2.3%). Sentiment remains very sensitive to Fed policy and a key driver remains how the Fed reacts to the massive US fiscal stimulus in 2018 combined with the reverse of QE.
A surprise has been the Euro Zone (-7.1%). I under-estimated the uncertainty of Brexit within Europe, and unstable politics together with a relatively weak banking system is affecting markets. It is unclear where the catalyst will come from to kick-start growth, although this environment should favour the ‘bond plays’ in Europe.