The impact of technology and disruption on the property sector is creating structural growth opportunities for this asset class, but investors need to stay active to access these and, at the same time, counter expected slower economic growth in 2020.

Key takeaways

• Sectors such as data centres, cell towers and logistics are set to benefit from thematic shifts in real estate, with retail being among the industry’s losers
• Property investors need to be long physical real estate to capture the market’s potential
• Amid lower economic growth, real estate companies can benefit from stability of income and visibility of earnings

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Where will investors find the best opportunities in global property equities in 2020?

Tim Gibson: Our big thesis has really been where property which is generally quite a cyclical business is undergoing something which is quite structural. And the impact of technology and disruption means that we are seeing winners and losers; those winners are generally in sectors such as logistics, data centres, cell tower companies. These are the growth opportunities that exist and get us really excited about our space.The flipside of that thing has been obviously the losers and those typically have been the retail stocks.

What are the implications of negative-yielding bonds on listed property?

Tim Gibson: You need to be long on physical real estate; that is the bottom line. If you have to pay a bank to store your money, if you buy a bond with a negative yield, you’re going to get less back in the future than you are today. And remember we still have inflation; it’s not a large number, but it is still a positive number. So therefore that backdrop, those characteristics, are incredibly positive for global property securities. We’ve seen that in 2019 and we expect to see that again in 2020.

Are there any unintended consequences from negative yields?

Tim Gibson: It’s very positive for property, that drives property prices up, but it also drives a generation out of the property market. It’s almost impossible for millennials, certainly on their own, without the help of the bank of mum and dad, to actually get on the property ladder. What does this mean? Well, the implications from that is essentially that they are renters, so we can take advantage of that within our portfolio when we look at single family rental accommodations.

What does lower economic growth mean for real estate company earnings?

Tim Gibson: We are in a period of lower economic growth; when we look at our companies’ earnings though, we get very excited. The companies that we’re invested in have an earnings growth profile of somewhere in the range of about five to eight or nine per cent.

As wider economic growth comes down, that means growth for the other companies within the wider global equity market also come down. So, on a relative basis, essentially we become more attractive. Couple that with the starting point of a dividend yield of somewhere in the region of four per cent, then it’s pretty easy for us to get to high single-digit, low double-digit return. So this lower growth environment I think very much plays in our favour. As well as that, you have stability of income.

It’s incredibly important to have that stability plus that visibility in terms of those earnings. Real estate companies are in an enviable position where we already know, for example, if you have a five-year lease, that means that 20 per cent of your lease will expire in one year, therefore 80 per cent of your earnings for 2020 are already locked in today.