New World Order: Where to Invest in 2017

It’s not over yet. Yes, the (arguably) most influential political moments in a decade are in the past: the Brexit referendum is done and now it’s a matter of whether the UK’s divorce from Europe actually happens. The UK Parliament may have something to say about that — much less voters who are having second thoughts. In the US, the Trump Administration is days away, complete with alleged white supremacists and professional wrestling entertainment executives in key advisory and cabinet positions.

But 2017 is primed to have its share of headache-inducing events: French elections are set for April 23, where far right National Front leader Marine Le Pen is making Trumpian noises; in Austria, far right Freedom Party of Austria candidate Norbert Hofer was finally defeated by Alexander Van der Bellen late in 2016, putting to rest fears of a xenophobic Austria; and in Germany, the state currently holding Europe together, elections are coming in late-summer or early autumn, with Angela Merkel gunning for her fourth turn as Chancellor. Will Germans punish her for unpopular refugee policy or opt for stability ahead of forthcoming instability in other parts of the world?

So what does the sea change of 2016 and the murkiness of ’17 mean for real estate investors?

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Colliers International has repeated it several times: Brexit and Trump prove that the developed world isn’t any safer from shock than its emerging counterparts. To that end, Asia could be a benefactor as investors seek locations in which to put their money. That applies to individual investors too.

Starting in Europe, Brexit or not, Manchester continues to demand investor attention and is shaping up to be the location of choice in the UK this year. The demographic numbers are on the city’s side, the government is committed the ambitious Northern Powerhouse, and apartment prices grew over 10% in 2015 (the last year for which complete data is available). London is always an option, but for value, yields and capital appreciation, Manchester is proving the wiser choice.

Berlin — in fact, Berlin, Hamburg and Frankfurt — tops the PwC/Urban Land Institute list for markets to watch in 2017. The annual Emerging Trends in Real Estate admits that Brexit is reshaping European real estate, but quotes a contributor stating, “Germany replaces the UK as Europe's Number 1 safe haven.” Berlin in young and stylish, Hamburg is the country’s best performing residential market, and Frankfurt is the frontrunner to pick up the banking slack should there be a professional flight from London in the future. In fact, Munich comes in at number five, making Germany the go-to location for investors this year, regardless of its forthcoming election. Dublin — also conspicuously outside the Brexit sphere — placed fourth.

North America

In North America, the US is still an investment target, but previous outliers such as Chicago are getting the attention now. According to research by Hong Kong investment advisory IP Global, the Windy City has among the US’s highest average rental yields (7.9%), prices remain 17% below their peak pre-GFC levels, and best of all, major multinationals are increasingly moving into town. PwC/ULI, however, puts Austin, Dallas/Fort Worth and Seattle in the top three. “The capital of Texas has consistently ticked the majority of the top boxes related to recent real estate market attractiveness,” said PwC/ULI. “The market has benefited from a diverse economy that was affected in a minimal way by the global financial crisis, a growing population base made up of an educated labour force, and the undeniable ‘hip’ factor that makes Austin attractive to the millennial dominated workforce.”

The hotspots in Canada this year remain in Toronto, where rising population numbers, a favourable Loonie, a diverse economy, tight supply and no signs of a 15% overseas buyer tax are bringing more interest to the area, and in Vancouver, which rivals Toronto on all metrics with the exception of value. Toronto has more variety in pricing in its stock, which appeals to investors. Elsewhere in Canada, the surprise player in ’17 could be Winnipeg, where regional GDP is on the rise and development opportunities exist in greater number than either of the bigger centres.

Asia Pacific

Once again, Asia-Pacific overall will be the investment bright spot globally. Prospects are generally good across the region and institutional sentiment is positive, which bodes well for individual investors. Starting in Australia, Brisbane and Melbourne are its best bets in 2017. Sydney is flirting with value issues — prices are 30% higher than in Melbourne — making Brisbane’s fast rate of growth and Melbourne’s liveability attractive elements for investors. It’s predicted Melbourne will overtake Sydney as the country’s largest city mid-century, and Brisbane’s massive regeneration and infrastructure investment are positioning it well for the future.

Elsewhere in Asia, Tokyo remains a wise investment choice due to a still modest Yen, an ongoing low interest rate environment, positive demographics and strong yields (roughly 6%). Donald Trump’s promise to kill the Trans-Pacific Partnership is no idle threat, and how that will impact markets in Vietnam remains to be seen. In 2016 Vietnam was buoyed by optimism in the TPP’s ability to boost the economy (and with it real estate) and the slow but steady rise in foreign residential purchases following loosening of sales restrictions a year earlier.

Emerging markets are worth a look this year too, with Bangalore, Mumbai, Manila and Ho Chi Minh City (despite TPP uncertainty) topping the list. Business process outsourcing (BPO) continues to drive Bangalore’s growth and infrastructure development is buoying Mumbai. But India is closed to many investors, making Manila’s (or the Philippines’) booming economy and pan-sector property demand one to watch.