From urban hotspots to dynamic new sectors to transformational infrastructure projects, Knight Frank's investment advisers around the world identify seven exciting opportunities for private property investors in 2018 and beyond
Picking investment winners in any asset class depends on a number of elements coming together. In real estate for example, the key factors might include a dynamic location, a sector that’s in growth mode, and positive demand from both occupiers (to provide the income) and investors (to drive up prices).
Here we identify seven areas where we see those crucial elements coming together, and that we believe have the potential to outperform the competition over the next few years.
They include three cities highlighted by our global network as having significant economic momentum and positive property market dynamics, three sectors with strong occupier demand driven by structural shifts and, last but by no means least, a vision and strategy with the potential to have a truly transformational impact on locations and markets around the world.
The Netherlands increasingly appear on the radar of investors looking for exposure to economic and property market recovery in Europe. In Amsterdam, high vacancy rates in the office sector were previously a concern for those looking to deploy capital, but availability is now tumbling – office leasing reached a nine-year high in 2016, and 2017 was equally strong – and supply shortages are emerging in the most sought-after districts.
At the same time, the city’s vibrant and expanding technology sector is driving demand, and rents are rising. While Amsterdam draws significant investment volumes, positive market dynamics in Rotterdam are also attracting interest from global investors.
Indeed, with investors looking to the Netherlands as an appealing alternative to the more expensive European markets such as Paris and Berlin, demand for assets is expected to remain robust.
The Philippines is seeing significant growth in its real estate markets with Manila, home to close to 13 million residents, at the heart of this expansion. Strong economic fundamentals, an investment grade rating and an increasingly transparent real estate market is attracting growing investment interest from around the world.
Office vacancy rates remain constrained despite ongoing development activity as local and offshore occupiers drive robust levels of office demand. With further significant infrastructure projects planned, Manila is growing into a significant regional hub and, increasingly, a destination for global real estate investment.
Now emerging from the shadows of the giant US technology centres of Silicon Valley and San Francisco, Pittsburgh is establishing itself as an important tech centre capable of attracting the world’s biggest firms.
Household names with an office in the city include Amazon, Apple, Facebook, Google and Uber. Indeed, more than 70 major tech-focused firms with headquarters in Silicon Valley have opened local offices in Pittsburgh over the last ten years.
This is driving the city’s status as a key technology hotspot and, in particular, as a centre for the development of artificial intelligence and autonomous vehicles. In turn, this growth is triggering regeneration and increasing interest from real estate investors.
The strong growth of online consumer spending continues to drive high levels of leasing activity of logistics units by retailers (both traditional and online) and third party logistics providers. This active demand is driving robust income returns through strong rental value growth in locations with low vacancy rates and modest development pipelines.
This is not a new topic for The Wealth Report; we discussed the trend in some detail last year. However, we continue to expect significant growth to come from the structural changes ongoing across the globe.
For example, in the UK, logistics property returns, as measured by MSCI's IPD Property Index, exceeded 20% in 2017 and industry consensus forecasts predict it will again be the top performing commercial property sector in the UK in 2018.
While the UK has a relatively more advanced online sales platform (around 18% of retail sales are online), other countries are at a much earlier stage of adoption (10% in France and 5% in Spain, for example) and are expected to continue to grow at pace.
Amazon is well established in markets such as the UK and the US, but only opened a full retail offering in Australia in December 2017. There is plenty more mileage in this real estate story.
As a larger proportion of retail spending moves online and retailers shift their strategy to ensure that they thrive in the world of multichannel retailing, a clear – and perhaps counterintuitive – trend is the importance of the bricks-and-mortar store.
Retailers recognise the value of a physical presence that can act as a showcase, drawing customers in and creating an experience and destination that encapsulates their values and brings their brand “story” to life.
Household names such as Apple, H&M, Louis Vuitton, Uniqlo, Samsung, Nike and others cluster in premier locations with many brands having multiple flagships around the world and often more than one per city. Suitable assets are seeing strong demand as retailers place greater value on these “destination” flagship stores and compete for space in the prestigious locations that best reflect their brand and ambition.
Global demographics and changing consumption trends all point to agriculture as a sector brimming with opportunity over the short and long term. It is estimated that population growth, land degradation, the impact of climate change and issues with water access will require an additional cropping area equivalent to three times the size of France by 2030. Where and what to invest in will very much depend on an individual’s attitude to risk and their investment horizon.
For those looking for large-scale landholdings with security of tenure, top quality management and significant energy and environmental diversification potential, with convenient access to the world’s fastest growing food market – by 2030 Asia’s “consuming class” is set to rise by 1.6 billion people – Australia ticks all the boxes.
In Africa, where the population is set to grow by almost 500 million people by 2030 and the sub-Saharan middle class is growing rapidly, Zambia offers either existing agricultural units farmed to Western standards, or the opportunity to buy large tracts of undeveloped land at much lower prices. In the UK, Brexit may pose a challenge for some farmers, but it will undoubtedly offer opportunities for innovative and forward-thinking agri-entrepreneurs.
Spanning 69 countries and encompassing around 60% of the world’s population and 40% of global GDP, the Belt and Road Initiative (BRI) is an ambitious Chinese vision aimed at driving economic growth, expanding global influence and promoting interconnectivity and integration.
The BRI - which is scheduled to be completed by 2046 - will provide a platform for new trade routes, economic links and business networks across six economic corridors spanning from China to Central and South Asia, the Middle East and Europe and along a maritime route from Southeast Asia, Oceania to the Middle East, Africa and Europe.
With the majority of BRI countries undergoing rapid modernisation and urbanisation, the requirement for investment in roads, railways, ports, airports, pipelines and technology infrastructure is exploding.
At the same time, the growth of new domestic and multinational companies in the BRI is also attracting Chinese investment, with merger and acquisition activity growing significant year on year. For many Chinese firms the BRI will become a core part of their business strategy and, increasingly, Chinese brands will become global.
As an opportunity for real estate investors, the development of the built environment alongside the BRI, through infrastructure, logistics or new urban settlements over the coming decades will be considerable.
The initiative will drive substantial new capital investment alongside strong growth in the activity of Chinese businesses that will bring exciting prospects for development, investment and value growth.
Of the 69 countries named as part of the initiative the Knight Frank New Frontiers report scored locations such as Singapore, Qatar, New Zealand, Estonia and Malaysia highly on our Belt and Road Development Index. There will be significant benefits for those real estate owners who can identify the right assets and harness the momentum that the BRI will undoubtedly bring.
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