Investors are increasing their allocation to real estate which has caused a supply and demand mismatch sparking concerns that risks in the sector are mounting.
Speaking at Investment Magazine’s Real Estate Forum, Justin Curlow, AXA Investment Management’s global head of research & strategy, real assets said the weight of capital targeting the asset class is far outstripping the annual volume of transactions means property yields will come under renewed pressure this year.
“Something has got to give effectively-likely pricing and we expect to see property yields across regions and sectors to continue to converge as investors search for yield where ever it can be found,” he said. He added that property yields should not fall foo far below 3 per cent and definitely not below 2 per cent as the ongoing cost of capex to maintain income generation should provide a floor.
Curlow said competition for deals is driving both asset and submarket level ‘risk creep’ as investors are increasingly willing to accept more property level risks in order to put capital to work.
The property specialist highlighted the structural and demographic shifts that are reshaping the economic landscape and offering property investors a defensive late cycle investment play. “When we talk about structural change, we are talking about the ongoing disruption in retail which is driving a structural shift in logistics demand to build out the supply chain infrastructure necessary to operate an omni-channel business,’ he said. “In addition, there are demographic and urbanisation trends that are reshaping major city landscapes and driving strong demand for a variety of residential property types. As new supply has not been able to keep up with this spike in demand, we expect the sector to continue to benefit from strong rent growth while offering investors an attractive relative value trade underpinned by the defensive income stream priced at a narrower yield spread to other property types following the yield convergence occurring across most markets.”
AXA is looking for alternatives sectors that are less aligned with the business cycle, he told the audience. “In this market context, we continue to look towards size and/or complexity to find investments where there is less competition.”
The strategist is also looking at other thematics like demographics and the new property types.
“There’s been an absolute dearth of supply over the last decade and that is changing the way people are interacting with buildings so there is a great opportunity to build new real estate even if the fundamentals are not great. “You don’t need growth if the type of real estate demanded is not catered to by existing stock. So new property types that cater to new way of engaging with buildings.”
AXA is active across tall four quadrants of real estate – private markets, public markets, debt and equity. “It’s very important to have visibility up and down the capital stack and across public to private as it’s a pretty inefficient sector still,” he said.
During the Forum, Curlow said given the weight of capital invested in real estate and the appetite investors should assess what is strategic and what will remain viable over the next 5, 10 and 15 years and what is not strategic.
“There is not a better market to sell into,” he said
Elizabeth Fry is the editor of Investment Magazine’s digital platform. Fry has been a financial journalist for more than 25 years and has written for a number of publications, including CFO, The Financial Times and The Australian Financial Review.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.
