With the global interest rate hike phase seemingly behind us and a significant increase in search interest for the real estate market, Kieran Staunton, investment manager at Arbuthnot Latham, reflects on recent developments and looks ahead at what the future may hold for real estate.
The real estate market has endured notable turbulence lately. Property values have dropped as shifts in demand post-COVID continue to affect the market. Additionally, increased interest rates have exerted considerable pressure on property values.
Two major events have had a lasting effect on the property market over the past four years. The first is the COVID-19 pandemic, which has drastically altered the dynamics of both retail and office properties. The rise of ecommerce, combined with an increase in remote working, has reduced the demand for physical retail and office space. Secondly, central banks around the world responded to rising inflation with an aggressive cycle of interest rate hikes. This environment, characterised by higher interest rates, drove down property values, especially affecting real estate companies that rely heavily on leverage. As a result, listed real estate investments significantly underperformed.
Despite the depressed property valuations, several areas within the real estate sector have shown strong rental growth over the past few years. Now that the cycle of global interest rate hikes seems to be over, opportunities in listed real estate are worth considering. According to Staunton, resilience in rental income has made listed properties an increasingly attractive option for investors seeking consistent yields in a challenging environment.
As yields decline, real estate investment trusts (REITs) often see improved performance, suggesting that opportunities remain within listed real estate, particularly for income-focused investors.
Arbuthnot Banking Group PLC (LON:ARBB), trading as Arbuthnot Latham, provides private and commercial banking products and services in the United Kingdom. Founded in 1833, Arbuthnot Banking is based in London, United Kingdom.
