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Global real estate shows its strength

By: Catherine Yoshimoto, senior index product manager

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 properties.

The FTSE EPRA/NAREIT Global Index returned 7.51%[1] 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%[2] 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 2018.[3]

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.

Learn more information about FTSE Russell’s global real estate indexes

 

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[1] Source: FTSE Russell, data as of March 30, 2018.

[2] Source: FTSE Russell, data as of March 30, 2018.

[3] Source: FTSE Russell, data as of March 30, 2018.

 

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