Global real estate returns holding up

According to fund manager NN Investment Partners, global real estate returns were 4.2% in July and the asset class outperformed equities by over 10% in the past year, with year-to-date performance of 13.9%.

NN Investment Partners principal strategist, multi-asset, Patrick Moonen, said that reducing yields on government bonds are boosting global real estate returns but this is not the only driver. He commented: “The excellent performance hides some wide regional divergences. The US and the Eurozone markets realised double-digit returns since the start of the year whereas Japan and the UK are deep in the red. This is a clear illustration that low bond yields alone are not enough to drive real estate. Economic and political visibility as well as earnings are also key drivers.”

Looking ahead, Moonen said that the prospects for real estate remain good, based on support from fundamental factors. “The labour market is strengthening which should influence the demand for office space. It will also support the housing market as affordability will improve thanks to higher income and continued low mortgage rates.” Moonen added that rising income should improve consumer confidence and lead to higher retail sales, which is good for retail real estate. But he acknowledged that the internet is affecting the nature of retail and commented: “Next to prime locations, there will also be a growing need for real estate in logistics and warehouses.”