While the slowdown in global growth is bad news for many, it also offers opportunities for those who know where to look. What are the causes behind this deceleration, though, and what will its effects be on property markets? A Cushman & Wakefield market report has taken a closer look at the global economy.
Worldwide economic growth has slowed, and this has a knock-on effect in property markets. Why is this slowdown happening, however? On the one hand, tax breaks in the USA are disappearing while trade tensions are going up; then there is the fact that China has tightened up credit rules as well as additional downward weight from Brexit, which is causing a great deal of uncertainty. Both in capital goods and consumer products, world trade has slowed down overall, with global GDP expected to increase this year by 3.3%; that’s solid growth, but less than the 3.6% seen in 2018 – and considerably below 2017’s 4%.
No reason to sound the alarm
Nevertheless, this slowdown shouldn’t have alarm bells ringing just yet. The economic cycle always includes phases of weaker growth, and forecasters have generally expected something of this order around now – not least due to the hot-headed confrontation between Washington and Beijing on trade; economic incentives on both sides, however, offer good grounds to expect a relatively speedy resolution of the dispute at hand. After all, the key thing which should not be forgotten is that the economic fundamentals driving demand in the property sector worldwide remain unchanged. The employment market, too, is flourishing, with around 29 million new jobs set to be created before the year is out. Put another way, that breaks down to 79,000 new positions daily and 23 million metres squared of new office lettings around the world; and in heavy industry and logistics, the amount of space let is double that. If the global economy were to be in a serious downward movement, these kinds of figures would be unthinkable. So while it is right to note that the speed of economic growth has slowed, it would be wrong to forget that the world economy is still growing – just not so strongly.
A satisfactory start to the year
Although the property market was sluggish early in the year, a lack of activity is nothing unusual for the first quarter. Several countries experienced a particularly cold winter, which has effects on the economy and those operating in it, i.e. if completion dates for construction projects are pushed back. Moreover, financial planning is often not yet finished; then there are important festivities in many territories and the Chinese new year. At 17% below the same quarter in the year previous, office lettings were nevertheless satisfactory with 4 million m² signed; the figures show a broad disparity between countries, however, and it is as yet unclear as to whether there will be convergence or increasing difference between economies as the year goes on.
The benefits of slower growth
Slowdowns in growth are nothing unusual – and are not always unwelcome, either. In fact, in some cases, a drop in growth can have a salutary effect as a respite, allowing for small market corrections, preventing overheating, and setting the scene for expansion to continue again at a later point. What is more, the slowdown has prevented further increases in the prices of oil and gas, which in turn takes pressure out of inflation – and, thereby, out of interest rates in the longer term. In fact, measured against 10-year bonds, rates are on average 50 base points below last year’s values, and the drop in interest on the capital markets has also eased the pressure on property profits while upholding the supply of attractive finance for investors.
So what happens next?
Forecasts are always just that – forecasts, not facts. In terms of probabilities, however, growth is likely to pick up again in the second half of 2019 and ought to be back at 3.6% by 2020. There are, nevertheless, a few analysts who are forecasting a global downturn, but very loosely at some point in the near future. Although these are all matters of opinion, what is a clear reality is that property markets have always performed well when economic growth was not outstanding, but simply satisfactory. This is a fact which is highly unlikely not to apply to this year, too.
Please fill in the form below to download the whole report:
