Bright outlook for US real estate

On his return from a research trip to the US, Frontier Advisors principal consultant and head of property Tim Singer is confident a well-defined US core property strategy will deliver strong risk-adjusted returns over the long term.

Mr Singer pointed to strong tenant demand being driven by growth in the technology sector – particularly in locations like San Francisco and Seattle.

"Major companies such as Amazon, Facebook, Apple, Google, Salesforce and many others are driving strong demand within these markets," Mr Singer said.
Amazon, for example, occupies close to 20 per cent of the Seattle office market – representing close to 900,000 square metres, he said.

"It appears to be a mature technology sector that many observers say is too large and varied to suffer the same fate as the tech bubble of the 2000s," Mr Singer said.

"One of the key differences today is that tech companies are profitable and generate cash. The general consensus across the US real estate research houses is that the outlook for the tech sector is positive," he said.

Healthy demographics in the US (as opposed to in the eurozone) also bode well for the real estate market, Mr Singer said.

"The US has a demographic transformation unfolding, creating a population where the majority is non-white and the demographic age pyramid has a rectangular shape, rather than a barbell shape," he said.

"By 2050, there are likely to be as many Americans over the age of 85 as there are under the age of five."

These demographic changes are likely to create "copious opportunities" in real estate markets, Mr Singer said – including office space, retail space, industrial distribution, healthcare, storage and student accommodation.

Finally, capital is expected to continue to flow to US real estate markets as investors seek "safety and security", he said.

"Given the low level of global 10-year bonds, the flow of capital to real estate and the quality of gateway cities within the US, it's reasonable to expect cap rates to remain at current levels for some time," he said.

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