CHICAGO, Dec. 15, 2016 /PRNewswire/ -- Ripple effects
from the recent presidential election in the U.S., coupled with the
Federal Reserve's expected increases of interest rates will shape
the economic outlook for North
America in 2017, according to LaSalle Investment
Management's Investment Strategy Annual (ISA) 2017.
The report suggests that 2017 will usher in significant
uncertainty for the region, as lack of clarity and direction
regarding President-Elect Donald Trump's policies and a
Republican-controlled U.S. Congress will keep investors questioning
the appropriate strategy to implement.
Jacques Gordon, Global Head of
Research and Strategy at LaSalle,
said: "The winds of change will be blowing throughout the world
economy and the US in 2017. Headwinds and tailwinds can both be
expected, along with market turbulence. While structural changes
will likely define the outlook for specific strategies in the U.S.,
real estate performance in most cases will be driven by secular
shifts. The ISA's best investment recommendations are aligned with
the demographic, technology, urbanization, and environment (DTU+E)
secular investment trends. Although some of these opportunities
have become fully-priced, there is still value in portfolios that
focus on the evolution of these long-term trends."
Additional ISA 2017 findings for the U.S. include:
- Large, diversified economies (e.g., Dallas, Atlanta, Chicago, and Phoenix) are expected to see steady demand
with local supply dynamics driving rent growth and returns.
- Energy-driven markets are seeing the weakest demand and there
will have to be a significant increase in global demand and energy
prices for a strong recovery to occur.
- Growth in leading tech markets (e.g., San Francisco, Silicon Valley, and
Cambridge) is expected to slow as
it becomes harder to attract and retain skilled workers due to high
costs, with additional risks stemming from potential trade wars and
immigration restrictions.
Property sector insights include:
- Warehouses/Industrial/Logistics: The most attractive
risk-adjusted opportunity in 2017 in the U.S. is expected to be
warehouse development. Driven by e-commerce and increases in
delivery speed, supply chain changes are increasing the demand for
modern warehouse space, at both close-in locations and traditional
distribution centers.
- Apartments: The secular trend of increasing urbanization,
associated with growth in millennial households and their
propensity to delay home purchase, has been met by a supply
response in many downtown apartment markets, driven by high rents
and pro-development policies. Apartments are expected to remain
durable sources of income, especially assets that will appeal to
millennials in their next phase of life.
- Retail: As e-commerce disrupts the retail landscape, we
are targeting three segments as defensive positions, which have
consistently outperformed other property types during prior
recessions: the best malls, urban retail, and necessity
grocery-anchored centers.
- Office: Technological innovation is shifting office demand
to areas with superior human capital — areas with a highly educated
population who prefer living where there are abundant retail and
leisure opportunities that are readily accessible.
Elsewhere in North America, the
ISA anticipates Canada's economy
will improve, with 1.5%–2.0% annual growth forecasted for 2017 and
2018. The recent increase in longer-term bond yields could lead to
slightly higher required real estate returns and debt costs.
However, debt costs should remain low on an historic basis and
continue to boost levered real estate returns.
Bill Maher, Head of Research
and Strategy for North America at
LaSalle, said: "The evolution
and maturation of large Canadian pension funds is a continuing
shift. These funds are seeking to diversify their portfolios with
international investments. In doing so, they are putting
'peripheral' domestic assets on the market. This creates attractive
core and core plus buying opportunities that are not typically
available." Maher continued, "While Alberta markets are weak due to
low oil prices, the other leading Canadian markets are poised to
benefit from steady demand and low volatility."
The U.S. is the largest trading partner of Canada and Mexico by a wide margin, and a roll-back of
the North American Free Trade Agreement (NAFTA) could have a
detrimental impact on all three economies. Canada is also one of the few major economies
continuing to embrace globalization, and the trade and immigration
that accompany it. From an immigration point of view, this could be
a positive for Canada, but
trade-oriented industries will face headwinds.
After many years of false expectations, the era of "lower for
longer" bond yields appears to be gradually coming to an end in the
U.S. But, the path toward the "normalization" of monetary
policy is still unclear. The Federal Reserve will consider interest
rate increases in 2017 and potentially initiate the "Great
Unwinding" of stimulative monetary policies. The pace of these
increases will be greater if economic growth accelerates due to new
and revised fiscal policies.
Rich Kleinman, Managing
Director of Research and Strategy in the U.S. for LaSalle, said: "It is unclear how this
shift will impact domestic and global markets, long-term interest
rates, and real estate capital markets in particular. If inflation
picks up in 2017, it could help certain types of real estate
relative to long-term bonds and sustain real estate capital flows.
Across the U.S., the best investment opportunities in 2017 will be
found in asset-specific strategies more so than property type
sector tilts."
Globally, the ISA finds that real estate returns will vary
depending on the vintage of assets held. For assets already owned,
improving economic fundamentals will boost performance. At the same
time, returns on new core investments will be hard-pressed to
repeat those of recent years as elevated levels of liquidity have
pushed prices up to levels where new investors with fresh capital
will need to accept low returns by historic
standards.
Mr. Gordon concluded: "Investing solely in domestic
markets greatly reduces the number of potentially rewarding
opportunities to take advantage of in the next two years. We
think it makes sense to balance multiple risk-return strategies in
a broad-based international real estate investment portfolio,
including global real estate securities, that runs in parallel with
a larger domestic program."
About LaSalle Investment Management
LaSalle
Investment Management is one of the world's leading real estate
investment managers with approximately $60
billion of private and public equity and private debt
investments under management (as of Q3 2016). LaSalle's diverse client base includes public
and private pension funds, insurance companies, governments,
corporations, endowments and private individuals from across the
globe. LaSalle sponsors a complete
range of investment vehicles including separate accounts, open- and
closed-end funds, public securities and entity-level investments.
LaSalle is a
wholly-owned, operationally independent subsidiary of
Jones Lang LaSalle Inc. (NYSE: JLL), one of the world's largest
real estate companies. For more information please visit
www.lasalle.com.
This press release does not constitute an offer to sell, or the
solicitation of an offer to buy any interests in any product
offered by LaSalle, or for the
advisory services of LaSalle, in
any jurisdiction where prohibited by law or where contrary to local
law or regulation. Any such offer to invest, if made, will only be
made by means of a private placement memorandum.
Contact Matt Schuler, LaSalle Investment
Management
Email
matt.schuler@lasalle.com
Telephone +1-312-897-4192
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SOURCE LaSalle Investment Management