‘A very benign outlook for real estate’

Sabina Kalyan, Global Head of Strategy & Research, Global Chief Economist, CBRE GI

The outlook is positive for the property sector, which is still good value compared to bonds, Sabina Kalyan, Global Head of Strategy & Research, Global Chief Economist, CBRE Global Investors, told The Real Estate Day.

The monetary policy loosening of last year is beginning to percolate through to the real economy and the context is ‘incredibly benign’ for real estate, she said, with ‘incredibly low interest rates and bond yields staying low forever. I wouldn’t be surprised if prime real estate yields fell further, which is amazing given where they are now by historical standards’.

There are reasons to be ‘cautiously optimistic,’ she said. The key threats from last year, like a trade war between the US and China and a cliff-edge no-deal Brexit, seem to have receded, although geo-politics, especially trouble in the Middle East and its impact on the oil price, remains a risk.

‘We look at a cities on a global level and at the moment the top US markets have stronger fundamentals – economic growth, job creation, wealth – than European cities, which are still stuck in a lower growth phase, so there is a bias to tilt from Europe to the US,’ Kalyan said. 

As far as sectors are concerned, logistics continues to be in huge demand but pricing has become more aggressive which ‘makes us nervous’, she said, while retail will suffer from more disruption so ‘it is not yet time to go back in’.

In order to avoid retail investors are therefore ‘forced into logistics, into offices in the best cities and in the alternative sectors’, Kalyan said. Alternatives have the best growth prospects because they still need to be established in Europe. ‘There is so much that still needs to be done, like creating a proper institutional build to rent market in the UK and other European countries’. 

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