Assessing the Benefits of Diversification During a Downturn
While returns are lower during a downturn, it is clear that the benefits of diversification and effective asset allocation increase significantly.
With the year drawing to a close, we turn our attention to the outlook and identify the major occupier and investment trends that we expect to influence market conditions and investment performance in 2020 and beyond.
We identify four key global trends that are set to have a significant aggregate impact:
1. More Employment Growth to Come: The current cycle continues to be driven by employment rather than productivity, while the stable outlook for global GDP growth points to another year of steady real estate returns.
2. Low Supply Environment Persists: The ongoing low supply environment continues to support prospects for rental growth, enhanced by a strong link with employment growth in the current cycle.
3. Further Scope for Yield Compression: Past interest rate increases have been weighing on real estate pricing, but the shift toward looser monetary policy paves the way for further yield compression in 2020.
4. Cross-Border Flows Weakening: Cross-border investment flows are weakening in the Americas and Europe, reflecting a wider slowdown in trade liberalization. Asia Pacific is bucking the trend.