Very interesting discussions were held during MIPIM (the real estate event for property professionals) last week in Cannes
Current outlook
Some traditional investors have stopped investing in certain areas that have become very expensive, choosing instead to look into selling off some of their property portfolios. (At the same time they are using cash to refinance their debt, as conditions are currently good for doing so). And institutional money continues to be invested in the real estate sector, with investors hoping for stable, long-term returns despite the fact that yields are at a record low. Institutional investors are still racing after core assets that offer stable returns, since there is still a positive risk premium for investing.
The current cocktail is both challenging and unprecedented: banks are starting to apply negative interest rates; ten-year government bond remuneration is dropping below zero in some places (currently Switzerland and Japan) or below 0.5% (e.g. in Germany); and piles of cash are available waiting to be invested. Volatility is back in stock markets and there are uncertainties regarding economic growth in many places, including Europe and Japan. Recessions have deepened in some countries, for example Russia and Brazil. The US economy might be performing pretty well, but China's is slowing down. Other questions may be lingering as well, such as: is the economic war on oil finally over? Or the war on currencies? Will the UK remain in the EU? How closely are we looking at a risk of deflation?
Looking ahead
The real estate market used to be an excellent indicator of economic growth, but it's not certain that this will continue to be the case—at least, if the landscape has really been so altered by central bank policies on quantitative easing, which have affected economics in a fundamental way.
For long-term investors, the hope to generate capital gain upon exit is becoming a secondary topic. Rather, the focus is shifting more towards ensuring the predictability of cash flows in the long run.
It is also interesting to note that certain sectors seem to possess a certain resilience to economic shocks, like student housing, healthcare, care homes, hospitality, and data centers.
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