Favorable economic and business environment for global listed real estate companies in 2011
Wednesday 20 April 2011
|The global economic and business environment is likely to be favourable to global real estate companies for the remainder of 2011, LaSalle Investment Management (Securities) said in its recently-released Quarterly Review and Outlook.|
|Ernst Jan de Leeuw, Head of European Securities, LaSalle Investment Management, said, “The resilience of the world’s economy is an important factor in the strength of investment markets in most parts of the world today. With property fundamentals improving, public real estate company earnings growth remains on track for 2011, with strong growth continuing in 2012. We are beginning to see more mergers and acquisitions, with the best companies in a position to acquire and improve the operations of less able competitors.|
“We think that companies with a strong base of existing investment properties, and with the ability to improve the performance of these assets as well as expand their holdings, are best positioned to outperform in the environment we foresee.”
While the disasters in Japan are a major concern in both humanitarian and economic terms, LaSalle believes that any impact on global economic growth rates will be minimal. Growth in Japan will slow in through the end of 2011, but there should be an uptick in economic activity in 2012, as the government and corporations spend money on reconstruction activities. Japan is experiencing a few supply-chain problems at the moment but nothing that should have a serious negative (or positive) impact on the other global economies.
First quarter review
Global real estate stocks and the broad market posted solid returns in the first quarter of 2011 despite considerable volatility in March. The UBS Global Investors Index of real estate stocks was up 4.5% while the MSCI World Equity Index of broad-market stocks gained 3.7%. North America, Europe and Australia all showed positive regional results; however, Asian real estate stocks declined, notably in Japan after a very strong fourth quarter, and somewhat less in Hong Kong and Singapore.
According to LaSalle, the first three months of 2011 marked another quarter of broad-based equity capital placements, with more than US $12 billion raised by public real estate companies in every country in its investment universe. Public real estate company earnings growth remains on track for 2011 with a high-single-digit increase expected this year and strong growth continuing in 2012. It expects growth this year to be led by higher earnings in North America and the UK.
Real estate companies in continental Europe were up 3.2% in the period and were a little ahead of the broad market index. The investment market has improved and values are rising although the leasing market has remained flat-to-weak. According to LaSalle, prime assets are seeing the strongest demand with initial yields compressing slightly and occupancies remaining stable. While Eurozone economic concerns stepped up somewhat on economic concerns in Portugal, Germany and Northern European countries have shown above average or better than expected growth. Unemployment is stable and inflation pressures low.
Property stocks were ahead 6.2% in the UK, well ahead of the broad UK market. The demand for prime assets has pushed pricing strongly upward. Industrial sector growth remains weak, while London office growth remains the strongest due to positive supply/demand dynamics. An increase in shopping center/ retail warehouse deal flow throughout the UK has signalled rising investor demand outside of London.
US REITs gained 6.7% in the quarter, somewhat better than the broad US market index. Industrial stocks lead the way, up more than 11% on the announced merger of the two largest industrial REITs. Office and health care stocks also did relatively well, while lodging and shopping center REITs lagged, especially in March.
Australian property stocks gained 3.5%, almost even with the broad Australian market. The GDP growth estimate for 2011 was revised downwards due to the impact of the Queensland floods and a slowdown in consumer spending. Retail sales were mixed in the first quarter, with a very high savings rate competing with cheaper imports. As expected, the office markets in Sydney and Melbourne are beginning to recover.
Real estate stocks in Japan were down 6.2% in the first quarter, lagging the broad Japanese stock market. All stocks were down sharply after the earthquake and associated disasters; then JREITs recovered nicely while developers underperformed. JREIT performance was partly driven by continued buying by the Bank of Japan, which doubled the target size of its asset purchase program for JREITs to Y100 billion.
Hong Kong property companies were off 1.6% this quarter, somewhat behind the broad market index, and following on a year of very high market returns. The office market for Hong Kong remains strong on the back of tight supply and good demand. Overall office rental rose 29% during the past year, with even more growth in the Central office district, and retail sales for 2010 were 18% higher than the prior year’s total, benefiting from the on-going economic recovery and sustained influx of visitor arrivals, as well as positive wealth effects as consumers' financial health improved and they felt more comfortable spending money.
Real estate stocks in Singapore were down 3.2% in the period, a little better than the performance of the broad Singapore stock market. In the residential sector, the most recent round of cooling measures appear to be moderating price increases at new residential projects, and LaSalle expects increased supply in 2011 to put downward pressure on asking prices. The Singapore economy remains on a healthy growth path, and the office, hotel, retail and industrial sectors are all expected to post rental growth this year.
Source: Citigate Dewe Rogerson
Real Estate Investment