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Timbercreek 2018 Global Real Estate Securities Outlook Report: Global REITs Expected to Deliver 8-10 Percent Returns

01/11/2018
  • Higher realizable rents, completion of development projects and new property acquisitions driving growth
  • Canada: Office and retail REITs capitalizing on urban growth
  • U.S.: The technology sector gaining momentum, driving up rent and demand for data centres

TORONTO - January 11, 2018 - Timbercreek today released its 2018 Market Outlook which identifies key trends the firm anticipates for global real estate securities in the year ahead. Overall, the report predicts strong performance across many markets including Canada and the United States, with global Real Estate Investment Trusts (REITs) expected to deliver returns of between 8-10 percent. 

“We anticipate that this year’s market conditions will be favourable for global real estate securities as valuations remain attractive, both on an absolute and a relative basis, with global REITs trading below the 10-year global equities average –levels not seen since 2008-2009,” stated Corrado Russo, Senior Managing Director, Investments & Global Head of Securities, Timbercreek. “These factors, when combined with projected dividend growth should positively influence global REIT share prices in 2018.”

Within the Canadian real estate sector, the report notes the following:   

  • The outlook for the sector remains positive, particularly for REITs that own office and retail assets with infill development opportunity in urban areas such as Toronto, Montreal and Vancouver. 
  • REITs are expected to add value on existing properties by creating mixed-use assets where each use – retail, residential and office – virtuously support each other. 
  • Timbercreek believes Canadian small cap REITs and REITs that own assets internationally (in Europe or the U.S.) are fundamentally mispriced and poised to deliver better than average returns in 2018.  

“Large cities in Canada are currently experiencing a wave of gentrification driven by people’s desire to live, work and play in walkable, urban environments,” said Mr. Russo. “This is creating a number of compelling opportunities for REITs to experience outsized growth and offer increasing value for investors.”

The report also predicts a positive overall outlook for the U.S., based on the following considerations:

  • The technology sector is a top investment opportunity for 2018 as data centres continue to gain momentum which should drive up market rents and increase the demand.
  • Survivors within bricks and mortar retail—specifically high quality retail centres in strong locations and non-discretionary grocery-anchored shopping centres that are trading at discounts—present opportunities to earn attractive dividend yields and generate outsized total returns.
  • The lodging sector represents a compelling source of upside for 2018 driven by improving U.S. GDP growth that is forecasted to accelerate to 2.7 percent and corporate tax reform that has the potential to loosen travel budgets which have been reined-in since the financial crisis. 
  • The outlook for the single family rental sector is expected to experience strong cyclical growth opportunities to earn above average total returns in 2018, in part due to a tax reform plan that penalizes home ownership in high tax markets. 

“In the U.S., home prices continue to rise, prompting growth in the rental market led by millennials,” said Mr. Russo. “Beyond this, secular growth opportunities exist in the world of technology, value plays in lodging and strong cyclical growth in single family rentals.”

Highlights - Other Markets:

  • U.K. & Continental Europe: Economic and property fundamentals continue to improve and broaden with GDP growth in Ireland, Spain, Germany and Sweden forecasted to be at around 3 percent in 2018.  The underperformance of European retail REITs–in the bricks and mortar and residential sectors–is expected to offer investors the opportunity to generate higher than average dividend yields.
  • Japan: Recent underperformance of Japanese real estate companies have made valuations more compelling heading into 2018. Further, economic conditions are improving led by small and medium business growth, accelerating prices, higher industrial production and rising employment.
  • Hong Kong: Office companies with a strong presence in decentralized submarkets such as Admiralty and Island East are favourable and anticipated to benefit from growing demand for high quality international tenants coming out of Central.
  • Australia: Australia is expected to generate attractive income from smaller sized REITs that invest in niche-oriented sectors such as education, entertainment and self-storage. In the office sector, Sydney and Melbourne remain pillars of strength.

“We believe global real estate fundamentals remain strong, with global REITs priced to deliver another year of positive total returns as suggested by our bottom-up fundamental analysis,” Mr. Russo concluded.

To view the report, please visit: http://www.timbercreek.com/quick-links/white-papers

About Timbercreek

Timbercreek is an active investor, owner and manager of global real estate and related assets focused on delivering sustainable and growing returns to our investors. Through our various separately managed accounts, TSX-listed entities and private investments, Timbercreek (together with its affiliates) manages over $7.5 billion[1] (CAD) in assets on behalf of investors seeking quality alternative asset class investments. Timbercreek employs a value-oriented investment philosophy, which is combined with an active, hands-on asset management style, to identify opportunities that will generate predictable and sustainable investment returns for our investors.

Media Inquiries:

CANADA 
Amie Lauder
NATIONAL Public Relations (for Timbercreek)
416-848-1399
alauder@national.ca

U.S.
Mary McGuire
SHIFT Communications (for Timbercreek)
646-756-3709
mmcguire@shift.com

For more information, please contact:
Timbercreek Investment Management Inc.
25 Price Street
Toronto, ON
Canada M4W 1Z1
1-844-304-9967

George Ganas
Senior Vice President
Global Distribution & Portfolio Specialist
416-928-3733
gganas@timbercreek.com


 

[1] Includes syndicated debt under administration. As of November 30, 2017.