Real estate investing in a volatile world
Making sense of the latest trends in property and economics from around the globe
5 minutes to read
Each year when preparing The Wealth Report, we consider the worst case scenarios for the global economy for the coming two-to-three years.
What a smorgasbord the world served up this year. Naturally, experts fretted over US President Donald Trump's tariffs the most, but inflation still stalks advanced economies, government borrowing looks set to test the patience of bond markets, US stock market valuations - particularly the tech sector - are very stretched, and all that's before we get to the great unknowns - events for which it's almost too difficult to produce proper forecasts. Think pandemics, natural disasters or the potential for a conflict over Taiwan - see page 10 for the analysis.
What feels particularly striking this year, however, is the pace at which the landscape is shifting. On Wednesday morning I shared the results of The Wealth Report 2025 with 450 clients at The Peninsula hotel, just off Hyde Park. A day earlier, Germany's main political parties had agreed to exclude defence spending from the nation's longstanding “debt brake”, a decision that triggered a surge in government bond yields that reverberated around the world. UK gilt yields touched the highest level since January.
The Germans made that momentous call hours after Trump had enacted massive 25% across-the-board tariffs on almost all goods from Mexico and Canada, and an additional 10% levy on China. The room at the Peninsula had barely been cleared by the time Trump granted a reprieve for cars being transported from Mexico and Canada. It took another 24 hours for Trump to pause the initial tariffs - at least for products covered by the trade deal he signed during his previous tenure.
Three out of four
This see-sawing from the US government added top spin to an ongoing equity market selloff, which is being led heavily by tech stocks. I make that three of our four major risks for the coming year or two in play, and The Wealth Report 2025 has been out barely 48 hours.
Ok, I'm being purposefully dramatic: yields on German bunds are surging on the prospect of an increase in issuance. This is no Liz Truss-style fiscally-induced crisis. And while tech stocks have been hit hard, this is a pull back from risk rather than a panic - though of course corrections have to start somewhere.
But in a world growing ever more volatile, real estate investors will fall back on fundamentals. The demographic certainty of the living sectors puts them at the top of global family offices' shopping lists, for example (page 28), while supply and demand imbalances—evident across key housing markets and in central London, where 62 companies are seeking offices over 50,000 sq ft—will continue to attract capital. Expect a tilt towards opportunities backed by enduring market dynamics, rather than those vulnerable to geopolitical turbulence. You can read more from me on this on page 8 of the report, which you can download here.
Housebuilding
MPs gushed over UK Prime Minister Keir Starmer on Monday following a week of successful diplomacy. Some aspects of his domestic policy lie in tatters, however.
The government's pledge to build 1.5 million homes over the course of the parliament now looks remote at best. Glenigan figures covered by the FT yesterday revealed that the number of homes given planning permission in England last year fell to the lowest since 2014. Permissions will need to rise by 53 percent to hit the 370,000 planning consents target that Labour set under its national planning policy late last year.
“The latest planning figures show that housing supply in the short and medium terms is at critical crisis levels,” Neil Jefferson, chief executive of the Home Builders Federation tells the paper.
Meanwhile S&P Global's measure of UK construction activity fell to its lowest level since 2020 last month, signalling a steep decline in output. Cost inflation accelerated to the highest level since March 2023. Residential construction led the declines, falling for the fifth month in a row. Aside from the pandemic, the rate of decline was the fastest since early-2009.
Granted, Labour's housing policies are broadly sensible and much of this comes down to soft demand and elevated borrowing costs, according to respondents to the S&P survey. The housebuilders have always been sceptical, however. Four in ten respondents to our latest survey reckon delivery will hit 200,000 in the next twelve months. A third reckon the industry won't manage more than 150,000.
House prices
UK house prices dipped -0.1% in February, while the annual rate of change held steady at 2.9%, Halifax reported this morning.
This equilibrium is showing up in other data: mortgage data from the Bank of England released on Monday showed that approvals for house purchase fell 300 to 66,200 in January, compared to an increase of 400 in December. This is roughly in-line with the monthly figures leading up to the pandemic in 2019.
“Despite a rush to complete ahead of the stamp duty increase in April, supply outpaced demand in the first two months of this year, which kept downwards pressure on house prices," Knight Frank's Tom Bill told the Standard this morning. "That pressure will be sustained if more inflation creeps into the UK economy through measures such as raising employer national insurance contributions. We were also reminded this week of how global politics can act as a brake on the market when Germany announced a defence spending increase, which pushed up borrowing costs in Europe. We expect low single-digit house price growth this year but the outlook is changeable.”
In other news...
Dubai property rally closes in on pre-2008 record (FT).