CHICAGO, Dec. 15, 2016 /PRNewswire/ -- Ripple effects from
the recent presidential election in the U.S., coupled with the Federal Reserve's expected increases of interest rates will shape
the economic outlook for North America in 2017, according to LaSalle Investment Management's
Investment Strategy Annual (ISA) 2017.
The report suggests that 2017 will usher in significant uncertainty for the region, as lack of clarity and direction regarding
President-Elect Donald Trump's policies and a Republican-controlled U.S. Congress will keep investors questioning the appropriate
strategy to implement.
Jacques Gordon, Global Head of Research and Strategy at LaSalle, said: "The winds of change will be blowing throughout the world economy and the US in 2017.
Headwinds and tailwinds can both be expected, along with market turbulence. While structural changes will likely define the
outlook for specific strategies in the U.S., real estate performance in most cases will be driven by secular shifts. The ISA's
best investment recommendations are aligned with the demographic, technology, urbanization, and environment (DTU+E) secular
investment trends. Although some of these opportunities have become fully-priced, there is still value in portfolios that focus
on the evolution of these long-term trends."
Additional ISA 2017 findings for the U.S. include:
- Large, diversified economies (e.g., Dallas, Atlanta,
Chicago, and Phoenix) are expected to see steady demand with
local supply dynamics driving rent growth and returns.
- Energy-driven markets are seeing the weakest demand and there will have to be a significant increase in global demand and
energy prices for a strong recovery to occur.
- Growth in leading tech markets (e.g., San Francisco, Silicon Valley, and Cambridge) is expected to slow as it becomes harder to attract and retain skilled workers due to high
costs, with additional risks stemming from potential trade wars and immigration restrictions.
Property sector insights include:
- Warehouses/Industrial/Logistics: The most attractive risk-adjusted opportunity in 2017 in the U.S. is expected to be
warehouse development. Driven by e-commerce and increases in delivery speed, supply chain changes are increasing the demand for
modern warehouse space, at both close-in locations and traditional distribution centers.
- Apartments: The secular trend of increasing urbanization, associated with growth in millennial households and their
propensity to delay home purchase, has been met by a supply response in many downtown apartment markets, driven by high rents
and pro-development policies. Apartments are expected to remain durable sources of income, especially assets that will appeal
to millennials in their next phase of life.
- Retail: As e-commerce disrupts the retail landscape, we are targeting three segments as defensive positions, which
have consistently outperformed other property types during prior recessions: the best malls, urban retail, and necessity
grocery-anchored centers.
- Office: Technological innovation is shifting office demand to areas with superior human capital — areas with a highly
educated population who prefer living where there are abundant retail and leisure opportunities that are readily
accessible.
Elsewhere in North America, the ISA anticipates Canada's
economy will improve, with 1.5%–2.0% annual growth forecasted for 2017 and 2018. The recent increase in longer-term bond yields
could lead to slightly higher required real estate returns and debt costs. However, debt costs should remain low on an historic
basis and continue to boost levered real estate returns.
Bill Maher, Head of Research and Strategy for North America
at LaSalle, said: "The evolution and maturation of large Canadian pension funds is a
continuing shift. These funds are seeking to diversify their portfolios with international investments. In doing so, they are
putting 'peripheral' domestic assets on the market. This creates attractive core and core plus buying opportunities that are not
typically available." Maher continued, "While Alberta markets are weak due to low oil prices, the other leading Canadian markets
are poised to benefit from steady demand and low volatility."
The U.S. is the largest trading partner of Canada and Mexico
by a wide margin, and a roll-back of the North American Free Trade Agreement (NAFTA) could have a detrimental impact on all three
economies. Canada is also one of the few major economies continuing to embrace globalization,
and the trade and immigration that accompany it. From an immigration point of view, this could be a positive for Canada, but trade-oriented industries will face headwinds.
After many years of false expectations, the era of "lower for longer" bond yields appears to be gradually coming to an end in
the U.S. But, the path toward the "normalization" of monetary policy is still unclear. The Federal Reserve will consider
interest rate increases in 2017 and potentially initiate the "Great Unwinding" of stimulative monetary policies. The pace of
these increases will be greater if economic growth accelerates due to new and revised fiscal policies.
Rich Kleinman, Managing Director of Research and Strategy in the U.S. for LaSalle, said: "It is unclear how this shift will impact domestic and global markets, long-term interest
rates, and real estate capital markets in particular. If inflation picks up in 2017, it could help certain types of real estate
relative to long-term bonds and sustain real estate capital flows. Across the U.S., the best investment opportunities in 2017
will be found in asset-specific strategies more so than property type sector tilts."
Globally, the ISA finds that real estate returns will vary depending on the vintage of assets held. For assets already owned,
improving economic fundamentals will boost performance. At the same time, returns on new core investments will be hard-pressed to
repeat those of recent years as elevated levels of liquidity have pushed prices up to levels where new investors with fresh
capital will need to accept low returns by historic standards.
Mr. Gordon concluded: "Investing solely in domestic markets greatly reduces the number of potentially rewarding
opportunities to take advantage of in the next two years. We think it makes sense to balance multiple risk-return
strategies in a broad-based international real estate investment portfolio, including global real estate securities, that runs in
parallel with a larger domestic program."
About LaSalle Investment Management
LaSalle Investment Management is one of the world's leading real estate investment managers with approximately
$60 billion of private and public equity and private debt investments under management (as of Q3
2016). LaSalle's diverse client base includes public and private pension funds, insurance
companies, governments, corporations, endowments and private individuals from across the globe. LaSalle sponsors a complete range of investment vehicles including separate accounts, open- and closed-end
funds, public securities and entity-level investments. LaSalle is a
wholly-owned, operationally independent subsidiary of Jones Lang LaSalle Inc. (NYSE: JLL), one of the world's largest
real estate companies. For more information please visit www.lasalle.com.
This press release does not constitute an offer to sell, or the solicitation of an offer to buy any interests in any product
offered by LaSalle, or for the advisory services of LaSalle, in
any jurisdiction where prohibited by law or where contrary to local law or regulation. Any such offer to invest, if made, will
only be made by means of a private placement memorandum.
Contact Matt Schuler, LaSalle Investment Management
Email matt.schuler@lasalle.com
Telephone +1-312-897-4192
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SOURCE LaSalle Investment Management