The annual strategy report from LaSalle advises investors to maintain a strategic balance of offensive and defensive positions.

LaSalle Investment Management’s Investment Strategy Annual (ISA) 2020 says investors need to capitalize on opportunities and mitigate risk in 2020, according to an article by Andrea Zander in Institutional Real Estate, Inc.

The report covers outlooks for both the Canadian and US real estate markets.

Economic macros

Economies of both countries would grow at a slow and sustained pace. They would enjoy solid employment, positive consumer sentiment, and fiscal stimulus. Both the US and Canada have sufficient monetary policy headroom to tackle an economic crisis by injecting liquidity. Additionally, they have advanced but flexible capital, real estate, and labor markets. These markets are well-equipped to withstand an adverse economic event.

On the flipside, both countries suffer from divisive politics, stagnant middle-class income growth, and the overhang from protracted trade wars.

According to Jacques Gordon, global head of research and strategy at LaSalle, global real estate sectors are likely to face headwinds in the next few years. That’s in the context of the decade of unprecedented growth after the global financial crisis. However, economic conditions are unlikely to deteriorate very sharply or suddenly. Nevertheless, investors still need to be cautious. They need to keep an eye on the global macro forces playing out in their country.

“I question whether growing the deficit and keeping monetary policy solos and job numbers so good is sustainable,” Gordon said to Pensions&Investments. “Something is going to give it some point.”

However, “low inflation, falling interest rates, and balanced fundamentals in most developed countries create ideal conditions for real estate to thrive,” said Gordon.

“While technology poses some level of risk, it is also allowing for more informed decision making and, in many cases, making properties more attractive to their end-users,” he added.

Structuring real estate portfolios in 2020

However, fundamental factors could substantially vary from the property sector to sector says they ISA 2020. An investor would also need to consider demographics, technology, urbanization, and environmental factors before investing in the property sector.

For instance, there is a wide gap between the outstanding returns in the industrial sector and the negative returns in the mall and power center segments of the retail market.

Rich Kleinman, head of research and strategy in the United States for LaSalle, said, “In the U.S., the gap between the index returns of different property types has been historically wide in recent years, driven by the growth of e-commerce and shifts in investor sentiment. Our expectation is this gap will start to slowly narrow and be much more narrow for new investments where market pricing is already addressing differences in property type outlooks.”

Real estate opportunities in 2020

LaSalle is bullish on apartments and the industrial sector. Specialty property types would offer opportunities to acquire superior cash flows. In retail, there could be both opportunities and pitfalls given the pace of evolutionary change in the sector.

“Be more selective,” suggests Gordon. “Be more cautious in how you underwrite your ability to increase rents and lease buildings.”

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