Global Real Estate Shows Its Strength

by: FTSE Russell

By Catherine Yoshimoto, senior index product manager

As the global economy exhibited solid growth and central banks rolled back their post-crisis stimulus in a steady fashion, inflation worries have now come to the forefront, especially in interest-rate sensitive sectors like real estate.

Regardless of what lies ahead, rents have been rising in line with economic growth and inflation, and with limited new supply in many markets and increasing occupancy levels, the industrial, residential and diversified property sectors have performed strongly over the past year.

Industrial property was the strongest developed market property sector in 2017 and continued to lead the other sectors in the first quarter of 2018 with a total return of 20% in US dollar terms over the 12 months ended March 30, 2018.

Demand for industrial property has increased thanks to the boom in e-commerce. While the rise of e-commerce has hurt retail, online retailers that need a physical presence to drive sales and create distribution hubs are fueling the demand for industrial properties.

The FTSE EPRA/NAREIT Global Index returned 7.51%[1] in US dollar terms in the 12 months ended March 30, 2018, led by the Asia ex Japan region. The FTSE EPRA/NAREIT Emerging Index returned 38.23%[2] in US dollar terms led by Emerging Asia Pacific constituents.

China created record levels of new loans in order to offset the shrinking Fed balance sheet, supporting the Chinese housing market. The FTSE EPRA/NAREIT China Index, which comprises 57% of the FTSE EPRA/NAREIT Emerging Index, returned 9.82% in the first quarter of 2018.[3]

Although property stocks have seen some weakness recently, the drive towards global diversification continues. Global real estate may be a compelling income-producing real asset to consider as a core asset class, such as in target date funds, because the rationale for diversifying into global real estate and earning a higher yield that's less correlated with domestic markets remains intact.

[1] Source: FTSE Russell, data as of March 30, 2018.

[2] Source: FTSE Russell, data as of March 30, 2018.

[3] Source: FTSE Russell, data as of March 30, 2018.

© 2018 London Stock Exchange Group plc and its applicable group undertakings (the "LSE Group"). The LSE Group includes (1) FTSE International Limited ("FTSE"), (2) Frank Russell Company ("Russell"), (3) FTSE TMX Global Debt Capital Markets Inc. and FTSE TMX Global Debt Capital Markets Limited (together, "FTSE TMX"), (4) MTSNext Limited ("MTSNext"), (5) Mergent, Inc. ("Mergent"), (6) FTSE Fixed Income LLC ("FTSE FI") and (7) The Yield Book Inc. ("YB"). All rights reserved.

FTSE Russell® is a trading name of FTSE, Russell, FTSE TMX, MTS Next Limited, Mergent, FTSE FI and YB. "FTSE®", "Russell®", "FTSE Russell®", "MTS®", "FTSE TMX®", "FTSE4Good®", "ICB®", "Mergent®" , "WorldBIG®", "USBIG®", "EuroBIG®", "AusBIG®", "The Yield Book®", and all other trademarks and service marks used herein (whether registered or unregistered) are trademarks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, FTSE TMX, Mergent, FTSE FI or YB.

"NAREIT®" is a trademark of the National Association of Real Estate Investment Trusts ("NAREIT ") and "EPRA®" is a trade mark of the European Public Real Estate Association ("EPRA") and all are used by FTSE under licence. The FTSE EPRA/NAREIT Global Real Estate Index Series is calculated by FTSE. All intellectual property rights within the index values and constituent list vest in FTSE, Euronext N.V., NAREIT and EPRA.

All information is provided for information purposes only. All information and data contained in this publication is obtained by the LSE Group, from sources believed by it to be accurate and reliable. Because of the possibility of human and mechanical error as well as other factors, however, such information and data is provided "as is" without warranty of any kind. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the accuracy, timeliness, completeness, merchantability of any information or of results to be obtained from the use of the FTSE Russell Indexes or the fitness or suitability of the FTSE Russell Indexes for any particular purpose to which they might be put. Any representation of historical data accessible through FTSE Russell Indexes is provided for information purposes only and is not a reliable indicator of future performance.

No responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for (a) any loss or damage in whole or in part caused by, resulting from, or relating to any error (negligent or otherwise) or other circumstance involved in procuring, collecting, compiling, interpreting, analysing, editing, transcribing, transmitting, communicating or delivering any such information or data or from use of this document or links to this document or (b) any direct, indirect, special, consequential or incidental damages whatsoever, even if any member of the LSE Group is advised in advance of the possibility of such damages, resulting from the use of, or inability to use, such information.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing contained in this document or accessible through FTSE Russell Indexes, including statistical data and industry reports, should be taken as constituting financial or investment advice or a financial promotion.

Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual trading of investable assets. Certain returns shown may reflect back-tested performance. All performance presented prior to the index inception date is back-tested performance. Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. However, back- tested data may reflect the application of the index methodology with the benefit of hindsight, and the historic calculations of an index may change from month to month based on revisions to the underlying economic data used in the calculation of the index.

No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group data requires a licence from FTSE, Russell, FTSE TMX, MTSNext, Mergent, FTSE FI, YB and/or their respective licensors.