Reitsmarket in 2018

2018 has been a turbulent year with surging political uncertainties, threats of global trade wars, Brexit negotiations in Europe, an Italian budgetary crisis, a series of US interest rate hikes etc.


2018 has been a turbulent year with surging political uncertainties, threats of global trade wars, Brexit negotiations in Europe, an Italian budgetary crisis, a series of US interest rate hikes etc.

The chart below provides an overview of various geographical REITs market’s returns and volatilities in 2018.

 

Source: Reitsmarket, Bloomberg.

The US REITs market continued to be supported by a strong underlying economy but at the same time had to deal with interest rates hikes. Coupled with political uncertainties and multiple market sell-offs, it has been the most volatile market worldwide for the developed markets.

European REIT’s performance was mainly influenced by political matters. Brexit unclarity had a strong impact on the London’s office sectors, one of the more popular real assets for overseas investors. France follows with similar concerns, especially after recent social unrest. Large European retailers in main European capitals face even stronger competition from e-commerce and are challenged by technologically advanced logistics and storage REITs. Countries with focus on residential sector as Germany and Belgium overperformed the market with higher demand for prime residence. Finally, we observed a strong decline in the Netherlands as home sales declined for the last 2 years while real estate prices continue to surge.

In the Asia Pacific region growth has slowed down given the escalations in the US-China trade conflict throughout the year. Singapore’s and Hong-Kong’s economies were strongly dependent of both markets and were the main outliers of the region (in local currencies). REITs from Australia and Japan have taken the lead in the region and closed the year with positive returns (in local currencies) as their economies have shown to be more resilient.

 

Reitsmarket Indices

Our leading Index, the Reitsmarket GRESB Global Sustainable Index has outperformed the Benchmark in 2018 and this in combination with an average risk reduction (daily volatility) of 26% throughout the year.

Its dynamic regional allocation has been skewed towards Asia Pacific 2018 driven by fundamental factors. Moreover, the Asia Pacific market is a now leader in sustainability with over 60 companies having a ABC GRESB Score and sufficient liquidity to be included in our indices, versus 30 in Europe and 50 in North America.

The Global Balanced and the Global Conviction Indices slightly underperformed the benchmark in 2018 but combined this with an average risk reduction of 21.7% and 20.8% respectively throughout the year. The Canadian REITS were substantially overweighted versus US Reits based on solid valuations and fundamentals in combination with lower volatility. As result, even though the indices were exposed by 50% and 60% respectively to the North American region, they still managed to show similar volatility level to the Sustainable Index (mostly exposed to Asia) due to the smart intra-region selection.
The European and Asia Pacific preferences have been very diversified for the European portion and gradually shifted from Singapore and Hong Kong towards Japan and Australia.

Reitsmarket will be producing a 2019 outlook in by end of January 2019.

 

About Reitsmarket

Reitsmarket is a Luxembourg specialist boutique offering global quantitative and algorithmic REITs related research, specific REITs market advisory and smart indexation. Reitsmarket was founded by Rego Partners, a Belgium based financial boutique owned by Benedict Peeters and Christophe Pecoraro, two financial experts. Reitsmarket provides tailor-made financial research solutions and services for institutional clients within the global REITs market, generally designed with the purpose to add portfolio stability and the aim to enhance return over long-term periods.