Global real estate enjoys ‘favourable outlook’
James Maydew, AMP Capital head of Global Listed Real Estate, said global listed real estate has been enjoying a favourable outlook, supported by historically-low interest rates and improving economic sentiment.
Maydew said even though rates may have seen their cyclical lows, they expect rates to remain low relative to historical averages and see the return of inflationary pressures to assist many segments of the real estate market that are able to access economic growth during 2018.
Maydew has also earmarked three areas that will perform particularly well this year due to their exposure to long-term secular growth trends: data centres, e-commerce and demographics.
According to Maydew, the proliferation and dependency of data globally is driving the internet ecosystem of the cloud to new levels of mainstream adoption. Not only that, consumers, especially millennials, the largest living generation who are now driving the economy, have adopted data-heavy content such as Netflix, YouTube, Instagram and Spotify more frequently.
But, he wrote, all this data needs a secure home that can be easily accessed by consumers with minimal latency.
“That’s where data centres play a vital role in connecting the global population to the internet and charging rent and connection fees for the privilege,” Maydew stated.
Between 2015 and 2020, he said, it is anticipated that global datacentre workloads will increase by 27 per cent CAGR and this will continue to drive demand for the real estate and infrastructue that house the network especially in markets such as North Virginia in the US where 70 per cent of the global internet traffic flows through.
As landlords to the internet and the cloud, datacentres are well positioned to continue to capitalise and deliver outsized growth.
E-commerce winners and losers
Maydew said with consumption trends shifting dramatically, especially with the disruption of the retail world by e-commerce giants like Amazon and Alibaba, there have been news stories spreading about the ‘death of the mall’.
He said, however, there are also winners in the real estate market from this trend that benefit from this structural shift.
“Logistics facilities have been nicknamed ‘cheap malls’ in certain real estate circles as they are now a vital cog in any ecommerce transaction and play the same role that malls have always done via storage and access to goods for sale,” he wrote. “The UK is a prime example of this trend, with ecommerce penetration (ex food) approaching 40 per cent, and forecast to move towards 50 per cent in the coming three to five years.”
Maydew said this is driven in part by the proliferation of mobile technology with 47 per cent growth in online sales via mobile devices in 2016. It’s occurring at a point in time where industrial floor space supply has been shrinking due to the conversion of land to ‘better and higher use’ real estate such as residential. This is causing an inflexion point in the logistics market, squeezing rents, capital values and occupancy to all-time highs.
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