The MSCI Global Property Index, tracking performance of 55,675 individual real estate assets in 25 countries, recorded a total return of 7.4 per cent in 2018 — the same across-the-board result reported earlier this year for 2,424 directly held standing assets in the Canada Property Index. A recently released summary of last year’s trends finds Canada relatively inconspicuous in the mid to back half of the pack among national markets, but also part of a smaller group of 12 that can boast an improvement from 2017.
“After the slowdown in 2016, when the global index total return fell 324 basis points, there were fears that global property might have reached a turning point. However, with returns stabilizing over subsequent years, those fears proved to be unfounded,” observes Bryan Reid, vice president, global real estate research, with MSCI. “Nevertheless, investor caution persists, with the length of the cycle, technology disruption and increasing global trade tensions being just a few of the issues of concern.”
Hungary achieved the highest total return, at 24.5 per cent, but represents just 0.1 per cent of the total weight of the global index. The Netherlands, which accounts for a more significant share, was the next best performer with a 14.4 per cent total return in 2018.
Belgium bottomed out the scale with a total return of 5 per cent, with the United Kingdom’s 6 per cent total return relegating it to the next-to-last position. Ranked 16th among 25, Canada also outperformed the United States, Poland, France, Japan, Switzerland, South Korea and Italy.
Canada’s record-low yields and rising asset values were mirrored globally last year. The global index registered an income return of 4.5 per cent and asset value increased in every country except Belgium. Reid suggests income return could now be a less stable component of projected long-term performance.
“In the short term, investors with higher total return expectations could consider low yields to be a risk factor,” he theorizes. “Faced with falling yields, investors wanting to maintain higher total return targets are likely to be more reliant on uncertain and more volatile capital growth.”
The global index also replicated Canadian trends in sectoral performance as industrial properties achieved an impressive 13.4 per cent total return, while retail returns slipped to 3.6 per cent. Reid calls 2018 the first year that evidence validates “concern that some of the technological change helping to drive industrial demand could have a detrimental effect on bricks-and-mortar retail”. Until now, retail returns had been relatively on par with those for the office and residential sectors.
Retail’s weight in the global index is likewise diminishing. As of year-end 2018, retail properties accounted for 24 per cent of the capital value of the index, down from 31 per cent in 2001. Office properties have also lost stature — dropping from 46 per cent of total capital value in 2001 to 39 per cent in 2018. Residential and industrial assets have largely filled the resulting gap. MSCI pegs the 2018 total capital value at USD $1.8 trillion.
“These trends are no accident,” Reid maintains. “Real estate has matured rapidly as an asset class and, as part of that process, the sector profile has evolved. As data has become more available and less well-known property types have become more established, investors have increasingly looked to diversify their exposures and gain access to the different risk and return profiles these sectors offer.”
Toronto and Vancouver rank as top-performing urban markets among the 85 cities MSCI tracks worldwide. Along with Seattle, they were the only North American cities where returns exceeded 10 per cent last year and one of 23 cities globally.
Halifax ranked 85th and was one of just two cities, along with Leeds in the UK, to record a negative total return last year. However, like Budapest in the number one position — achieving a 25 per cent total return in 2018 — Halifax carries negligible weight in the global index.