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International and Emerging Real Estate Semi-Annual Outlook

May 2021*

Divergence in Rebound

Real estate demand is likely to accelerate in H2 on the back of mass vaccinations and sustained reopenings. The retail and office sectors should recover while the recent surge in logistics and residential demand may marginally moderate. Such dynamics may play out at different speeds in different countries given the variations in vaccination rates, the preference for home working, as well as fiscal and monetary policies.

The COVID-19 pandemic has resulted in a shift in real estate demand over the past 15 months, characterised by a surge in demand for industrial and residential property and a decline in retail and office demand. The success of vaccine development and its rollout brings the hope of ending the pandemic. The GDP of many countries and cities surprised to the upside recently and forecasts are being revised up, signalling stronger real estate demand ahead. An improved demand outlook also offsets the negative effect of long-term interest rates rising from historically low levels.

If vaccines remain effective against new COVID-19 variants and the rollout picks up speed as planned, any future lockdowns will be more localised and less disruptive. The rise in confidence, mobility and activity will also be more sustained than under the stop-and-go lockdowns in 2020. Demand for retail and office space are likely to recover in such a scenario, whereas the boom in logistics and residential property may take a breather. Nevertheless, the latter benefit from the permanent changes in consumer behaviour and office use since the pandemic.

Retail: Non-essential physical retailers were the worst hit in 2020, compounded by the multi-year oversupply (noticeably in the US and Europe) preceding the pandemic. They are also primary beneficiaries of mass vaccination that underpins the more sustained ease of restrictions. Footfall at cafes, restaurants, shopping malls and entertainment venues has risen in Israel, the UK and the US with high vaccination rates and in Australia which successfully contained COVID-19 year to date. That said, rents are falling – and may continue to fall in H2 - in most cities globally, given the still-elevated retail failures and deferred rents. Retail is set to be the last real estate sector to recover fully.

*The publication reflects asset performance up to 30 April, 2021, and macro events and data releases up to May 12, 2021, unless indicated otherwise. Data about mobility and footfall are from Google, while data about real estate rents, net absorption and supply are from JLL.

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The information contained herein is obtained from sources believed by City of London Investment Management Company Limited to be accurate and reliable. No responsibility can be accepted under any circumstances for errors of fact or omission. Any forward looking statements or forecasts are based on assumptions and actual results may vary from any such statements or forecasts.

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City of London Investment Management Company Limited (“CLIM”) is authorised and regulated for the conduct of investment business within the UK by the Financial Conduct Authority (FCA), registered as an Investment Advisor with the United States Securities and Exchange Commission (SEC) and regulated by the Dubai Financial Services Authority (DFSA). Registered in England and Wales No. 2851236. Registered Office: 77 Gracechurch Street, London, EC3V 0AS, England.

© 2021 City of London Investment Management Company Limited. All rights reserved.