International Real Estate: A Go-To Asset Class For Private Investors
According to the latest BNP Paribas Wealth Management real estate report, international real estate continues to be an essential asset class for portfolio diversification. The report, which provides an analysis of the real estate market and examines the potential for commercial and residential property across Europe, North America, Emerging Asia and Latin America, has clearly outlined the benefits of a strong allocation to this asset class.
The report has highlighted the following key trends:
- Europe’s core housing market is strong: rents and value will keep pace with inflation. There is a clear opportunity for high net worth individuals to buy in Continental Europe.
- Continental Europe is enjoying an improvement in economic growth, which could spur demand from investors for every category of commercial real estate.
- In most markets we expect to see meaningful real rental growth for 2017/2018. German cities (Munich, Berlin and Hamburg) are in pole position. But growth is expected to be equally strong in Madrid and Milan as well. Vacancy rates in Europe’s office markets are very low in the most sought-after sectors such as Paris, Brussels, Dublin or Milan.
- UK commercial property remained relatively resilient over the past 6 months, although we can expect a continued slowdown in high-end London housing market.
As such, we are positive on lower-tiered commercial and core residential, and neutral on top-tiered commercial buildings.
- US housing value growth to slow down in the near future
- While there are no imminent signs that US commercial property markets will reach a turning point soon there are mounting concerns about how far commercial property prices could go.
- A lower ‘real’ yield - adjusted for expected inflation - reflects a lower growth potential for the US economy, and makes real estate a more attractive asset class.
We are neutral on commercial and residential programs.
- In Asia, Japan is deemed a safe haven, considering the growing uncertainty about neighbouring countries (e.g. North Korea).
- In China, residential real estate growth will come from regional cities as the biggest cities have less room for growth in the short term – we have started to see a discrepancy between top-tier housing markets (Beijing, Shanghai etc.) and ‘smaller’ cities. For the first time, lower-tiered markets are expected to outperform prime markets in the coming months.
- Australia’s housing markets have been isolated from other Asian countries, performance wise, in the past few years. As such, they have provided a perfect means of diversification for Asian and non-Asian investors. Nonetheless, local residential markets may eventually see a significant correction in the coming months.
We are neutral on commercial and residential real estate markets.
“Private investors, who are most concerned by wealth creation, while at the same time protecting their assets, can benefit from an allocation to real estate in order to maximize portfolio diversification. Although property markets for retailers are starting to feel pressure from e-commerce growth, we believe that real estate remains an essential asset class in modern portfolios in particular due to its low correlation with other asset classes, tangible assets offering higher recurrent cash income in a low interest rate environment, and capital growth potential."
Head of Real Estate Investment Strategy, BNP Paribas Wealth Management
“Besides the relatively good health of most occupier markets, total returns – including income return and capital growth – are expected to be particularly robust in numerous European cities for 2017, supported by significant capital growth. In Central London, prices of offices remain solid and total return is likely to be positive in average (+5%). In Spain, a 16% total return is again expected thanks to a good orientation of all economic and property fundamentals. Total return should again be robust in most major German cities, (Berlin +21%), thanks to down yields and steep rises in rental values. In France, total return is expected to be respectable, especially in La Défense (+15%), which shows the highest potential of growth in the Paris Region over the coming years.”
Global Head of Research, BNP Paribas Real Estate