As the global economy
exhibited solid growth and central banks rolled back their post-crisis stimulus
in a steady fashion, inflation worries have now come to the forefront,
especially in interest-rate sensitive sectors like real estate.
Regardless of what lies
ahead, rents have been rising in line with economic growth and inflation, and
with limited new supply in many markets and increasing occupancy levels, the
industrial, residential and diversified property sectors have performed
strongly over the past year.
Industrial property was the
strongest developed market property sector in 2017 and continued to lead the
other sectors in the first quarter of 2018 with a total return of 20% in US
dollar terms over the 12 months ended March 30, 2018.
Demand for industrial
property has increased thanks to the boom in e-commerce. While the rise of
e-commerce has hurt retail, online retailers that need a physical presence to
drive sales and create distribution hubs are fueling the demand for industrial
The FTSE EPRA/NAREIT Global
Index returned 7.51% in US dollar terms in the 12 months
ended March 30, 2018, led by the Asia ex Japan region. The FTSE EPRA/NAREIT
Emerging Index returned 38.23% in US dollar terms led by
Emerging Asia Pacific constituents.
China created record levels
of new loans in order to offset the shrinking Fed balance sheet, supporting the
Chinese housing market. The FTSE EPRA/NAREIT China Index, which comprises 57%
of the FTSE EPRA/NAREIT Emerging Index, returned 9.82% in the first quarter of
Although property stocks
have seen some weakness recently, the drive towards global diversification
continues. Global real estate may be a compelling income-producing real asset
to consider as a core asset class, such as in target date funds, because the
rationale for diversifying into global real estate and earning a higher yield
that's less correlated with domestic markets remains intact.
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