Real estate set to outperform other investment classes over next 5 years
Global real estate is expected to outperform bonds and equities over the next five years, according to a new report from Oxford Economics.
The global forecasting firm has stated that the predicted performance is a reflection of sustained influx of money into the asset class and the strong predicted performance of the residential and industrial sectors in particular.
“Despite tightening monetary policy, the prospects for both public and private real estate look good over the next five years, supported by healthy economic growth and a weight of capital searching for stable and predictable income streams,” said Mark Unsworth, associate director at Oxford Economics.
Over the period 2022-2026, Mr Unsworth’s team of economists have projected total returns for global direct real estate and real estate investment trusts (REIT) to average 6.5 per cent to 7 per cent per annum, significantly higher than bonds and equities, which are expected to return just 0.7 per cent and 2.5 per cent per annum, respectively.
Additionally, Oxford Economics has forecast global economic growth to underpin real estate income growth, while structural forces keep long-term interest rates low, reducing the impact of rate hikes on property returns in the short term.
Nonetheless, Mr Unsworth acknowledged the dangers of chronically increasing inflation: “There are uncertainties regarding the longer-term real estate outlook, such as the effect of structural forces on demand and the degree to which the climate transition affects obsolescence and future supply.”
Oxford Economics uses the Global Economic Model, which provides a consistent and transparent framework for assessing returns based on macroeconomic fundamentals.
Here are some key takeaways they used as drivers of real estate performance:
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