SOURCE: LaSalle Investment Management

LaSalle Investment Management

December 16, 2013 08:30 ET

LaSalle Identifies Key Drivers for Growth in the Global Property Market for 2014

Changes Linked to Demographics, Technology and Urbanization Provide Investors Insights

CHICAGO, IL--(Marketwired - Dec 16, 2013) - Changes linked to demographics, technology and urbanization (DTU) are likely to become key drivers for growth in the global property market in 2014, according to LaSalle Investment Management's 2014 Investment Strategy Annual (ISA).

Populations are aging, while younger people are increasingly drawn to city-center living, and businesses are adapting to provide more connectivity in the workplace. This gives investors the chance to closely examine opportunities in the DTU space such as healthcare, urban residential projects with good access to work and to shops and office space that has connectivity and sustainability, and logistics space linked with e-commerce.

"Urbanization is on the rise in many markets, creating opportunities to invest in projects that are served by transit that meet the demand for denser, multi-purpose buildings," said Jacques Gordon, Global Head of Research and Strategy for LaSalle. "Meanwhile, the aging of the baby boomers also has implications for all types or real estate including housing and healthcare. Investors will need to take account of all these factors when making their investment decisions in 2014."

The shift towards DTU-linked investment will reinforce other trends in the global property investment market, the ISA found. Increasingly, investors will transition from a domestic-only approach to one that also includes international real-estate holdings. With core yields still under pressure, investors should consider moving to higher-yielding sectors such as logistics, healthcare or student housing. They should also seek locations on the edge of central business districts, rather than competing for the most expensive buildings in the heart of major financial centers. 

Other themes for 2014 include:

  • Risk-averse behavior is likely to continue to ease as sophisticated investors begin to take more risk in 2014.
  • Equity and debt will continue to be plentiful for fully-leased, modern assets in cities such as London, San Francisco and Hong Kong.
  • Investors will need to avoid competing with growing sources of domestic capital in emerging markets
  • New sub-types of real estate assets such as laboratory space, healthcare centers and student housing will continue to be introduced in various countries.

For investors in North American real estate, the 2014 Investment Strategy Annual offers research and insights on industry trends and predictions that can guide investment strategies in the coming years. Despite governmental uncertainty in the U.S., in 2014 the economies and real estate markets in North America should make steady forward progress. In 2015 and beyond, the underlying positives of globally competitive companies, recovering housing market in the U.S., and lowering dependence on foreign oil should bring the U.S. and the region to trend growth levels.

Economic conditions in Canada and Mexico will continue to rise and fall in tandem with those in the U.S. Canadian property markets remain healthy and much of the new supply is pre-leased or is replacing obsolete product. Canada faces challenges in identifying new markets for its exports, as well as a potential housing slow down. Mexico is implementing important reforms to its education, fiscal, banking, telecommunications, and energy sectors that are designed to increase structural GDP growth. These reforms should facilitate improvements over time, but could be disruptive in the short term.

This year's report includes key insights on how the inter-related themes of changing demographics, urbanization and rapid developments in technology will influence real estate markets across the continent and provide new investment opportunities.

"We see opportunity across North America in 2014, as the economies and real estate markets continue to make steady progress," said Bill Maher, Director of North American Investment Strategy at LaSalle. "We're particularly optimistic about a handful of markets where key trends converge. For instance, in cities where there's growth expected due to urbanization and changing technology needs, we could see strong market support for new development and major renovation in the coming years."

Key Trends in The United States
In the United States, the rise of the Millennial generation has led to a growing preference for mixed-used neighborhoods in urban areas that offer multiple forms of non-automobile accessibility. Markets across the country are seeing Millennials gravitate toward municipalities and neighborhoods just outside of urban city centers, such as Hoboken, New Jersey, and developing urban cores in markets like Houston, Texas. Key factors leading to the expansion of these Millennial hotspots are a strong neighborhood and good access to jobs and urban amenities.

As a result, the 2014 Investment Strategy Annual examines the best real estate opportunities that capitalize on this trend, including high street retail and millennial magnet urban neighborhoods and close-in suburbs that offer a more affordable cost of living than downtown city centers. In addition, the aging Baby Boomer generation and health care reform will provide new opportunities for investing in medical office space as demand for medical services increases.

Rapid changes in technology are also changing the face of the U.S. real estate market, providing new investment opportunities in warehouse and distribution space and traditional office space. With the continued increase in e-commerce, companies like Amazon are driving an increased demand for warehouse space that can offer more centrally located distribution facilities for same-day service. In addition, the rapid growth of cloud computing is also driving demand for quality warehouse space. The layout and density of traditional office space is also evolving with the rise of telecommuting and more collaborative work environments.

Further, with U.S. real estate transactional volume back to normal in 2013 and on pace to surpass 2012 levels, the Investment Strategy Annual provides recommendations on 2014 U.S. core investment and higher return investment opportunities. The report predicts that core retail investments will outperform in 2014, while the office market offers the best opportunities for higher returns.

Key Trends in Canada
In the years following the recession, Canada has emerged as North America's leader in economic growth while mirroring the demographic and urbanization trends seen in the United States. The Investment Strategy Annual predicts that the Canadian industrial sector is ripe for investment in 2014, as the logistics and distribution segment will see strong demand resulting from growing international retailers and e-commerce.

"The logistics and distribution segment remains undersupplied in most markets across Canada, so we anticipate seeing continued strong demand in this sector in 2014," said Chris Langstaff, Canadian strategist at LaSalle. "In addition, demand for well-located retail space will stay strong in Canada as the market absorbs new entrants, including many U.S. retail chains seeking a presence in Canada."

The Investment Strategy Annual also predicts that the U.S. urbanization trend driven by Millennials is also underway in Canada, with markets like Toronto, Montreal and Calgary seeing an increased volume of high density residential development in downtown and surrounding areas. Meanwhile, as many U.S. retail chains continue to enter Canada, existing Canadian chains will continue to adapt and seek new ways to better compete.

Key Trends in Mexico
In Mexico, the Investment Strategy Annual predicts that structural reforms to the finance and educational systems will help lead to long-term growth throughout the country.

"Mexico is implementing a series of reforms that are designed to increase structural GDP growth and facilitate economic improvements over time," said Manuel Zapata, Mexico strategist at LaSalle. "The results of these reforms, combined with healthy property fundamentals and deeper capital markets favor value-add investing strategies, particularly in the industrial and office sectors."

The global auto sector has continued to shift capacity to Mexico, contributing to an increasing middle class that is driving demand for middle-income housing in major cities and lifestyle retail centers. The Investment Strategy Annual predicts that office development in Mexico City and other large markets, full service hotels, industrial real estate and increasing retail real estate opportunities will provide significant investment opportunities in 2014.

For twenty years, the Investment Strategy Annual has provided industry-leading research, insights and predictions global real estate investment opportunities for LaSalle Investment Management clients and partners. To learn more about the 2014 Investment Strategy Annual, visit www.LaSalle.com/research.

About LaSalle Investment Management
LaSalle Investment Management, Inc., a member of the Jones Lang LaSalle group (NYSE: JLL) and advisor to Jones Lang LaSalle Income Property Trust, is a leading global real estate investment manager, with approximately $48 billion of assets under management of private and public property equity investments. LaSalle is active across a range of real estate capital and operating markets including private and public, debt and equity and its clients include public and private pension funds, insurance companies, governments, endowments and private individuals from across the globe. For more information, visit www.lasalle.com.

Forward Looking Statements
This press release may contain forward-looking statements with respect to Jones Lang LaSalle Income Property Trust. Forward-looking statements are statements that are not descriptions of historical facts and include statements regarding management's intentions, beliefs, expectations, plans or predictions of the future. Because such statements include risks, uncertainties and contingencies, actual results may differ materially from those expressed or implied by such forward-looking statements.

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