The outlook for real assets in 2018

Adjustments to monetary policy by Central Banks globally, along with the technological change sweeping through and changing the shape of industries, emerge as the two pervasive themes likely to define real asset valuations in 2018 and beyond, according to leading real estate and infrastructure experts.

The favourable outlook for real assets is set to continue in 2018, with interest rates globally set to stay at historically low levels, even though the US Federal Reserve is expected to start raising rates this year, the experts highlight.

Yield compression across the sectors in the Australian market for instance – including office, industrial and retail – is anticipated to continue in 2018 by an average of between 12.5 to 25 basis points, Carmel Hourigan, AMP Capital Global Head of Real Estate, points out.

Meanwhile, in the United States, rising GDP growth will spur new investor demand and wage growth over the medium term, Hourigan adds.

In infrastructure, the strong deal flow is set to continue this year, Boe Pahari, AMP Capital Global Head of Infrastructure Equity, points out.

The healthcare, energy and transportation segments are presenting new and interesting opportunities for infrastructure investors pursuing an active approach to the asset class, Pahari adds.

In the latest 2018 Real Asset outlook – available to download here – Pahari and Hourigan, along with James Maydew, AMP Capital Head of Global Listed Real Estate, Giuseppe Corona, AMP Capital Head of Global Listed Infrastructure and Andrew Jones, AMP Capital Global Head of Infrastructure Debt, outline their highlights and predictions for the year ahead.

During a time of immense change – both in terms of economic conditions and technological disruption – the experts are finding opportunities in their respective sectors by identifying long terms secular growth trends.

From the demand generated for industrial real estate on the back of the broad-based consumer adoption of e-commerce, to the redevelopment of shopping malls for experiential purposes, and new opportunities emerging for active investors in burgeoning infrastructure categories – these opportunities are all summarised in the latest outlook.

More deals are expected to materialise in United States, where there’s a fertile market for infrastructure investments, Pahari highlights. AMP Capital is actively scouting deals in North America following the acquisition late last year of ITS ConGlobal, one of North America’s largest operators of intermodal railroad and auto terminals, container and yard depots.

In terms of funding for these deals, Andrew Jones, AMP Capital Global Head of Infrastructure Debt, notes he’s seeing plenty of “dry powder” in infrastructure equity funds targeting core assets in developed markets which he says, combined with continued strong demand from banks and institutional investors targeting senior debt, is supporting a healthy pipeline of M&A activity.