Head of Global Property Securities, Stephen Hayes, shares his outlook for office, retail, hotels and residential markets heading into 2018.

With an improving global economic back drop and falling unemployment rates in most developed countries, the outlook for continued high occupancy rates for investment grade real estate is encouraging. The low interest rate environment has seen private market values elevated. While supply is increasing in some markets, developers and landlords can still make new developments pencil. In most markets, strong tenant demand combined with new supply is resulting in market equilibrium. Moderate rental market growth and high occupancy rates are supportive of secure cash flow growth. Interest rates are expected to moderately rise in 2018, which may cause some short term volatility in the sector, but overall we do not believe moderate rate rises will materially impact valuations.

Within the United States, the outlook for the single family rental sector (freestanding housing) is expected to remain healthy with tax reform likely and moderately rising interest rates. Hotels should also benefit from the improving economy and increased corporate spend. The West Coast office markets should also continue to benefit from the strong employment growth.

Within Europe, the Madrid and Paris office markets are set to tighten as market vacancy rates fall to low levels, with market rental growth looking to increase. The German housing markets are also well placed for continued cash flow, particularly Berlin. 

Economic growth in the United Kingdom is expected to continue to slow in 2018 as decision-making is halted until the final BREXIT deal is known. The London office market is likely to experience a slight increase in vacancy rates. Retail sales are likely to remain subdued due to imported inflation impacting household finances. 

The improving Japanese economy is expected to continue to support the Tokyo office market with strong tenant demand outstripping supply with market vacancy rates to remain low. The Singapore and Hong Kong property markets are also likely to remain well placed into 2018, as their economies are supported by improving global trade.