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Real estate set to outperform other investment classes over next 5 years

By Noemi Pamintuan-Jara 02 February 2022 | 1 minute read

Global real estate is expected to outperform bonds and equities over the next five years, according to a new report from Oxford Economics.

The global forecasting firm has stated that the predicted performance is a reflection of sustained influx of money into the asset class and the strong predicted performance of the residential and industrial sectors in particular.

“Despite tightening monetary policy, the prospects for both public and private real estate look good over the next five years, supported by healthy economic growth and a weight of capital searching for stable and predictable income streams,” said Mark Unsworth, associate director at Oxford Economics.

Over the period 2022-2026, Mr Unsworth’s team of economists have projected total returns for global direct real estate and real estate investment trusts (REIT) to average 6.5 per cent to 7 per cent per annum, significantly higher than bonds and equities, which are expected to return just 0.7 per cent and 2.5 per cent per annum, respectively.

Additionally, Oxford Economics has forecast global economic growth to underpin real estate income growth, while structural forces keep long-term interest rates low, reducing the impact of rate hikes on property returns in the short term.

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Nonetheless, Mr Unsworth acknowledged the dangers of chronically increasing inflation: “There are uncertainties regarding the longer-term real estate outlook, such as the effect of structural forces on demand and the degree to which the climate transition affects obsolescence and future supply.”

Oxford Economics uses the Global Economic Model, which provides a consistent and transparent framework for assessing returns based on macroeconomic fundamentals.

Here are some key takeaways they used as drivers of real estate performance:

  • Gross value added (GVA) in building activity: above-average construction activity in the short term before stabilising, implying that new real estate development supply will moderately expand over the next few years, albeit from low levels.
  • Private consumption: surplus savings enhance consumption in the short term before reverting to the pre-pandemic rate of growth.
  • House prices are expected to decrease from their recent highs, but affordability concerns will continue to be a problem.
  • Ten-year government bond rates are rising in reaction to increasing inflation and monetary policy tightening, although they are still low by historical standards.
  • High equities valuations, as compared to macroeconomic fundamentals, operate as a drag on future performance.

RELATED TERMS

Real estate

Real estate is a type of real property that refers to any land and its permanent improvement or structures that come with it, whether natural or man-made.

Real estate

Real estate is a type of real property that refers to any land and its permanent improvement or structures that come with it, whether natural or man-made.

About the author

Noemi Pamintuan-jara

Noemi Pamintuan-jara

Noemi is a journalist for Smart Property Investment and Real Estate Business. She has extensive experience writing for business, health, and education industries. Noemi is a contributing author of an abstract published by the American Public Health Association, and Best Practices in Emergency Pedagogical Methods in Germany. She shares ownership of the copyright of an instructional video for pharmacists when communicating with deaf patients. She attended De La Salle University where she obtained a double degree in Psychology and Marketing... Read more



Real estate set to outperform other investment classes over next 5 years
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