James Roberts, Knight Frank’s chief economist, shares his take on the key trends set to shape the property investment landscape in the year ahead
The global economy moved into a new cycle in 2017, following the sluggish performance seen in the years after the global financial crisis.
The election of President Trump did not derail US growth, the euro area saw output strengthen and unemployment fall, while rising commodity prices moved mineral-exporting nations out of the doldrums.
The digital revolution, and the disruption it brings, continued to spread, as firms like Alibaba, Amazon, Uber and WeWork established outposts in ever more cities around the world.
In 2018, we see growth strengthening further. The International Monetary Fund is predicting the global economy to expand by 3.7%, which if correct would be the highest rate of growth since 2011. In this context, UHNWIs need to think of moving away from safe haven investments and towards risk-facing assets, which typically perform strongly in cyclical upswings.Here are four economic trends for investors to consider in 2018.
Many emerging market nations are now seeing rapid growth in service industries, most notably China. This reflects the growing economic strength of the middle classes, andan increasingly sophisticated economy. Meanwhile, after years of consolidation, many service firms in developed economies are now right-sized and looking for opportunities.
Consequently, we see growth coming in 2018 for office-based service industries, as expansion in the tech sector and more cross-border investment creates demand for professional and financial services.
Analyst and forecaster Oxford Economics are predicting worldwide GDP growth for financial and business services (FBS) industries to reach 3.7% in 2018, its strongest rate of expansion since 2006. In terms of headcount, Oxford Economics expects the number of global FBS workers to rise by 7.9 million in 2018. This could create demand for around 950 million sq ft of office space across the world: four times greater than the current office stock of London. UHNWIs should consider office investments in major city centres.
In 2017, cyber-attacks were frequently in the news, ranging from the global repercussions of the Wannacry virus, believed to have infected over 300,000 computers in 150 countries, to the attempt to hack the email accounts of members of the UK Parliament. Research firm Gartner estimates that global corporations spent over US$86 billion on cyber-security in 2017, up 7% on 2016, a figure it is forecasting to rise to US $93 billion in 2018.
As we move into an age where computers are starting to drive cars, and will soon control all the appliances in our homes, the potential for cyber-attacks to cause damage is going to increase exponentially.
We see demand for cyber- security software and services further boosting the already robust economic growth seen in cities that are popular with IT firms. This will have all sorts of investment implications for UHNWIs, ranging from start-ups seeking venture capital funding, to more demand for offices and homes in leading tech cities around the world.
During 2017, the central banks of Canada, the US and the UK all increased their policy rates, in what was seen as the beginning of the end for exceptionally low interest rates in those nations. By contrast, the European Central Bank continued to pursue quantitative easing (QE). However, some of the euro area nations, particularly Germany, have not needed such emergency policy measures for several years now.
With unemployment now falling and growth picking up across the currency bloc, the Bank is widely expected to begin gradually turning off the QE tap in 2018.This will probably result in nervous conditions in European investment markets across asset classes, similar to the “taper tantrum” seen in the US when the Fed wound down its QE purchases.
It is popularly said that markets hate uncertainty, and this could present investors who are prepared to look past short-term nerves with an opportunity to buy assets in the euro area at a discount.
The latest wave of the tech revolution has been closely associated with major western cities like San Francisco, New York City, London and Berlin. However, it is worth noting that the top 10 list of global internet firms ranked by revenue contains three Chinese firms.
The most recent edition of Knight Frank’s Global Cities report found that e-shopping was flourishing in Asian cities like Bangkok and New Delhi. Sales figures compiled by Gartner show Greater China is the world’s largest smartphone market, followed by emerging Asia, with North America in third place.
UHNWIs looking to capitalise on the rise of digital Asia should examine how the trends unfolded in the west for clues on how to invest. The rise of e-shopping in the West has boosted demand for courier companies, and pushed up values on the warehouses they operate from.
Also, there is ample evidence that in the US and Europe the tech phenomenon has been strongest in the cities with the best universities and the most vibrant social scenes. This will probably be the case in Asia too.
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