With the exception of China and Australia, retail sales of real estate in the Asia Pacific region was illustrated by a recent UBS Asset Management report as an inescapably «downbeat mood» especially as global growth slows.
«[R]etail sales have been resilient in China and Australia, but it is hard to escape the downbeat mood in other parts of APAC,» said the quarterly «Real Estate Summary» report.
«Singapore and Hong Kong saw growth in retail sales turn negative from February onwards, perhaps unsurprisingly given how exposed their economies are to trade (and the resultant effect that would have on consumer sentiment).»
According to the report, industrial real estate was the best-performing segment due to a «countervailing force of rising e-commerce» fuelling demand from third party logic companies. It also highlights tight vacancy rates and limited industrial land as positive drivers.
«For example, Hong Kong, which would arguably be the most affected by the U.S.-China trade war, has a vacancy rate of 2.1 percent for its prime warehouses. This is further supported by the government's industrial revitalization scheme, which seeks to make better use of industrial space given the society's changing needs.»
Two Words
«So what’s changed in the real estate outlook? In two words: interest rates,» said Paul Guest, lead real estate strategist in a recent UBS video covering the report.
Guest highlighted a wholesale shift in Fed rate path projection in the last six months from one more hike to the start of an easing cycle; and contemplations by the European Central Bank, Bank of Japan and Swiss National Bank about lowering negative interest rates further and quantitative easing.
UBS Asset Management recommends investors take a more conservative position on matters like lease-up assumptions and rental growth outlook. It highlighted three global real estate trends to look out for: more yield compression; increased leverage; and more inflows into niche, high-yielding markets like student housing or aged care.
«All told, central banks seem to believe that preemptive easing is needed to keep growth on track,» he added. «Together, a weaker growth outlook does mean weaker demand for real estate.»
