60 seconds on the state of real estate
The outlook for real estate is really interesting at the moment because returns, like almost never before in my career, are beginning to polarise.
On average, as the old adage says: “there’s a man lying down, his head is in the freezer and his feet are in the fire - on average he looks fine.”
That’s the best way of describing different real estate markets at the moment.
So there are certain cities that are winning. These are cities that have above-average employment growth, above-average GDP growth, and their real estate markets tend to be doing very well. They tend to have good environments and good infrastructure.
There are other cities, on the other side of the coin, that are suffering as much on the negative side as the winning cities are benefiting on the positive side.
The outlook is very mixed. The UK, if there was such a thing as an average that is reliable, may give you still reasonably high single digit returns.
Continental Europe is perhaps in the strongest growth phase it’s been in for a decade since the global financial crisis. So the winning cities in the region, such as Paris, Berlin and Stockholm, are doing particularly well.
Asia is interesting because it’s more complicated than Europe. It’s a bigger market, it’s more geographically diverse and so the winning cities are doing very well but again, the losers are losing quite badly. And that’s often not widely known.
The US is probably the market that is closest to the end of its cycle. There is value there, but the US has had such a good period, the valuations are very high relative to historic levels.
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