US and Canadian real estate markets to see strong performance in 2019
LaSalle is expecting strong performance for both the US and Canadian real estate markets in 2019 and into 2020, as fundamentals continue to exhibit stability amidst a chaotic political climate and economic cycle.
This stability does not extend to every facet of either market, but LaSalle believes core values will demonstrate resilience, despite the potential challenges of inflation and late-cycle anxiety that have permeated the North American economy. In order to mitigate these potential risks, the construction of real estate portfolios that employ defensive (low beta) positioning while still dedicating a portion of investment to higher (alpha-seeking) return strategies is recommended in LaSalle Investment Management’s Investment Strategy Annual (ISA) 2019.
The US and Canada are closely knit by trade, and their economic outlooks improved considerably in 2018 when the US-Mexico-Canada Agreement (USMCA) replaced NAFTA. Real estate markets in the US remain remarkably stable, though difficult choices lie ahead as outstanding recent economic and real estate performance combine with late-cycle worries to stoke fears about when the market will turn. In Canada, the USMCA alleviated threats of vehicle tariffs, which could have impacted the country’s most important manufacturing sector and tilted it into recession. While tariffs on steel and aluminium remain in place, the impact to Canada’s economy should remain relatively low.
Jacques Gordon, Global Head of Research and Strategy at LaSalle, says: “Global real estate markets continue to possess strong fundamentals, and we expect to see continued, albeit slowing, growth momentum into 2020. Real estate performance has largely remained stable in the face of global economic and geopolitical volatility, but uncertainties around these trends – as well as a potential downturn – could negatively impact the sector. Therefore, our recommendations highlight ‘low beta, positive alpha’ defensive strategies designed to insulate investors during a future down cycle, while taking advantage of secular trends that may overcome cyclical problems and capitalise on growth opportunities.”
Bill Maher, Head of Research and Strategy for North America at LaSalle, says: “Late-cycle investing requires higher degrees of both caution and conviction to keep a real estate portfolio performing at a high level. The techniques we discuss in the ISA include global screens, the Black Litterman model and a market level beta approach. These give portfolio managers new perspectives on where to focus their attention as they review the ever-expanding and complex array of available choices.”