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International and Emerging Real Estate Semi-Annual Outlook

November 2020*

Unique Recession, Unique Recovery

Overbuilding and monetary policy tightening caused previous recessions and property downturns. But it is the pandemic that drives the current demand-led crisis. While there remain important public health challenges over the winter, smarter lockdowns, better treatments and progress on a vaccine support a brighter outlook for 2021. A Biden presidency in the US and a more unified EU following Brexit also provide a more predictable policy environment for international real estate.

Building booms followed by monetary policy tightening heralded previous downturns in real estate. However, investors and banks have been more cautious in property lending and investing in this cycle given the lessons learned in the Global Financial Crisis (GFC). The market thus witnessed only modest supply before entering the recession this year. On the other hand, the COVID-19 pandemic provided a significant shock to demand for the real estate sector. To end the current health crisis, the world needs smarter mobility restrictions, better testing and treatments as well as progress on a vaccine. If there is progress on these fronts, it will provide an important uplift to occupier demand and investment in real estate next year, particularly in the second half.

Real estate is mostly driven by local demand and supply dynamics. It generally functions as a defensive asset in times of foreign policy frictions and trade uncertainty. But the past four years have demonstrated how protectionism, populism and unilateralism can dampen business confidence, investor sentiment, trade, capex, hiring, and ultimately, occupier demand, notably in non-US markets. In that regard, a Biden presidency signals a probable pivot in US trade and foreign policy towards rule-based multilateralism, benefitting cross-border trade and investment that are important for non-US markets. In Europe, while the shadow of Brexit heralds more negotiations (sometimes acrimonious) down the road, the post-Brexit EU has shown signs of solidarity this year, e.g. fiscal policy support via the EU Recovery Fund and the procurement of vaccines by the European Commission. A more benign geopolitical atmosphere supports non-US currencies and helps contain borrowing costs particularly in emerging markets (EM).

*This publication reflects asset performance up to 31 October, 2020, and macro events and data releases up to 11 November, 2020, unless indicated otherwise. Data about mobility and footfall are from Google, while data about real estate rents and supply are from Jones Lang LaSalle (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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© 2020 City of London Investment Management Company Limited.
All rights reserved.

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.

© 2020 City of London Investment Management Company Limited. All rights reserved.