The current low-growth, low interest rate environment is here to stay, says Rob Wilkinson, CEO of AEW, in his forecast of trends for the coming year.
What do you hope for most for your business in 2018?
That we continue to see an environment that favours investment in real estate. Low interest rates and some (would be nice to have a bit more) economic growth will sustain investor demand for real estate. It would be good to see the UK market recover this year. Although investment volumes are up on last year this has been driven mostly by private and Asian capital. The return of institutional demand, both domestic and international, for UK real estate would be a positive.
What do you fear the most in the coming year?
Inflation leading to a spike in interest rates would probably be the most damaging to our business. It’s not the level of leverage that is worrying but more that asset allocators would probably be forced to sell real estate to re-balance their portfolios as rising interest rates would reduce the value of their bond portfolios.
Will you be expanding or scaling down in 2018?
We expect to expand next year. We are seeing good demand for all our products, funds, separate accounts, club deals, debt, etc. and we don’t see this changing next year. We also expect to continue diversifying in terms of countries and asset types such as residential, senior housing and hotels.
What is set to have the biggest impact on your business?
Interest rate moves will have the biggest impact for the reasons mentioned above. Geopolitics could have been a contender but the markets seem to have learnt to cope with the uncertainty across the world.
What will trigger the next downturn in the European real estate industry?
The most obvious triggers would be a rise in interest rates or a geopolitical event. That said, we do not anticipate that interest rates will increase that rapidly and believe a low-growth, low interest rate environment is here to stay.
