Interest in global real estate is at an all-time high due in part to a “triple low” leading to a “triple high” over the past five years, according to LaSalle Investment Management global investment strategist Jacques Gordon.
The triple low refers to unprecedented low inflation, interest rates, gross domestic product and employment growth while the triple high concerns capital flow to real estate, real estate prices in major gateway cities and double-digit core returns in many markets, he explained.
The world is in a mature phase of the real estate cycle, however, so Gordon looked at a number of factors to see how long it’s likely to continue — especially since disinflation and deflation are more likely than inflation in 2016.
“Just getting to a three per cent GDP growth number is going to be a struggle if not impossible for most of the rich world,” he said as part of his forecast at Tuesday morning’s Global Property Market held at the Metro Toronto Convention Centre.
“It will keep interest rates low and keep the triple low in place in most countries. It will keep the spread of government and investment-grade bonds to real estate above historic norms. It will continue for at least one more year to be a magnet for capital coming into property.”
Culling portfolios of non-strategic assets
Gordon recommends culling portfolios of non-strategic assets, reducing leverage levels and anticipating liquidity needs if credit tightens or equity flows freeze up — which he doesn’t think will happen over the next two years, but will eventually.
“The liquidity of real estate is at an all-time high,” he said. “You’d be foolish not to be culling your portfolio and selling non-strategic assets that, for one reason or another, you don’t want to be owning in 10 years’ time.”
Gordon said there are dynamics specific to metropolitan areas, cities and districts at play and that real estate investors should seek properties involving density and mixed use, as well as projects linked to infrastructure spending since it’s “a reasonable way to jump-start very tepid, low-growth economies” if done well.
Technology trends will also play a role in real estate. Gordon believes innovation clusters, where tech-focused workers seek to be based close to each other in central business districts or near transit hubs, should be a good investment for companies since they act “as a way to hire and recruit in a very tight labour market for knowledge workers.”
He also recommends investing directly in buildings that house or support technology.