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CBRE 2020: Brexit and US elections twin political issues underpinning sentiment

Miles Gibson, Head of UK Research at CBRE, explains:

“The Trump Presidency has clearly had an impact on the global economy. Tax cuts have stimulated the US economy, while trade policy has led to sustained uncertainty as both the US and China have imposed tariffs on imported goods. The UK economy is dominated by services, which means that it has been less affected by specific trade issues than other European countries (especially Germany), but the effects are definitely present. So, in the run-up to the US election the UK could experience a bout of imported uncertainty on top of that created by Brexit.”

Investment volumes slowed markedly in the UK in 2019 down to around £45 billion, from £65 billion in 2018, according to CBRE data, as investors reflected politicians’ collective standstill, but a rebound is expected in 2020.

The lower interest rate environment across Europe – including negative 10-year Government bond yields in France, Germany and Netherlands and only just above zero in Spain, and only above 0.5% in Italy and the UK – is sustaining real estate’s relative value to fixed income. Against this backdrop, investors will continue to target super core real estate with little more than capital preservation in mind, forecasts CBRE.

Miles Gibson, Head of UK Research at CBRE, added:

“The UK is arguably priced at a significant discount to European markets, in large part because of perceived Brexit risk. If this can be eliminated, or precisely understood and quantified, yields could sharpen considerably.

“Investors have piled into operational real estate in recent years in search of sustained and sustainable income growth. 2020 will increasingly reveal more of the ‘winning’ platforms – those that can manage gross to net income most effectively while delivering a pipeline of additional product – and the underperformers.

“Reflecting its recent lack of appeal to investors, by the end of 2020, retail will account for under a third of the MSCI sample by value, having been more than half 15 years ago. If so, it would be the lowest share since 1984.”

james.wallace@realassetmedia.com