With the global interest rate hiking cycle behind us and search interest in the real estate market surging by 44%, Kieran Staunton, investment manager at Arbuthnot Latham, has reflected on these recent developments and considered the future of the real estate market.
“The real estate market has faced significant turbulence in recent times. Property values have fallen as the post-COVID environment continues to shift demand dynamics, while interest rate increases played a significant part in falling property values.”
The 2 Most Significant Factors Impacting the Property Market
The property market has been impacted by two key events in the last four years:
- The COVID-19 pandemic has fundamentally altered the dynamics of both retail and office real estate markets. The rise of ecommerce and remote working has negatively impacted the demand for these spaces.
- Following the pandemic, central banks worldwide embarked on an aggressive interest rate hiking campaign to combat inflation. Higher interest rates drove down property values. This created a particularly challenging environment for real estate companies, a sector heavily reliant on leverage, which resulted in the stark underperformance of listed Real Estate.
Rental Growth Still Remains Robust
Over the past few years, despite depressed valuations, “many sectors of the property market have demonstrated robust rental growth. With the global interest rate hiking cycle behind us, we can now explore the potential opportunities in listed real estate”– Kieran Staunton, investment manager at Arbuthnot Latham. Resilience in rental income has made listed property in particular an increasingly attractive source of income for investors seeking yield in a challenging market.
As yields fall, REITs tend to outperform:
