Looking for a safer bet ‘with upside’ during the Trump trade war?
Australia’s property markets could emerge winners as global investment houses look past the US and the volatility of the second Trump presidency to tap into more certain returns in other markets, including in the Asia Pacific region.
That’s the view of Kevin Thorpe, who as chief economist and head of global research at one of America’s largest real estate services firms, Cushman & Wakefield, is in the thick of the action.
Thorpe’s analysis comes just as, separately, the annual Milken conference in Beverley Hills this week brought together some of the world’s largest investors which, on the sidelines, were quietly beginning to reconsider how safe a bet the US remained for them.
“I have to say, from a real estate perspective, when I look at Australia, I see a market that is a safer bet, with upside,” Thorpe told The Australian Financial Review during a visit here this week.
“If you just take history as a guide, Australia’s property sector was very much unfazed by Trump’s first term. Sydney, Melbourne, the different markets they continued to absorb a healthy amount of space during Trump 1.0.
“Office occupancy held up very well. All the way until 2019 before the pandemic, Australia’s capital markets were rip-roaring.”
Thorpe’s analysis shows how global capital inflows into commercial real estate in the Asia Pacific stepped up from around 15 per cent of total investment to nearly 25 per cent during the first Trump administration. Volumes rose from $US25 billion ($39 billion) to $US45 billion ($70 billion).
After a recent pullback in commercial property investment, there is some evidence the tide is turning. Global investment in this sector, led by US-based investors fuelled by a stronger US dollar, has trended higher in absolute terms for the past four consecutive quarters, as has its proportionate contribution to total investment, according to the analysis.
“From what we’ve seen since April 2, ‘liberation day’, in the equity markets, in the stockmarket, there’s an argument to be made that part of what might be happening is a rotation of capital out of risk and into safety,” Thorpe said.
“And it’s not uncommon for real estate to benefit from that rotation.”
If that level of uncertainty remains in place, investors typically stay in cash, but as the outlook stabilises, they may rotate into the real estate, typically seen as a defensive asset or bond-proxy.
“You could start to see the capital shift more aggressively into sectors like property. In particular, this is where I would make the argument for Australia.
“Buyers could be looking at Australia [thinking] ‘this is really interesting to me, particularly, given the concerns with the United States. I want to diversify my portfolio, and I’m going to look around at the market for stable, better growth prospects. That screens Australia’.”
A switch is already apparent in the listed property sector, with investors lifting their weighting to the real estate investment trusts for the fourth consecutive month in March, according to separate analysis by JPMorgan this week.
Major funds are still underweight in listed property but, except for October in 2023, it is the narrowest underweight since the JPMorgan team began tracking fund positioning in 2017.
The proportion of fund managers which are overweight REITs remains at 25 per cent, the highest level since late 2023.
“The current uncertain economic environment with rate cuts pending is generally supportive conditions for REIT investment, JPMorgan analyst Richard Jones told the Financial Review on Wednesday.
“REITs revenue is largely locked in via in place leases so they are less exposed to economic headwinds than industrial companies.”
Underpinning the Cushman & Wakefield view is the inherent appeal of Australia’s relatively robust local economy, where falling inflation figures have fuelled hopes for an interest rate cut this month.
Australia could even emerge as a beneficiary if a global trade war breaks out, as goods once earmarked for the US look for new markets, according to Thorpe.
“What that may create is excess supply within the Asia Pacific region,” he said.
“In the building materials – the aluminum, the steel, the lumber, stuff that goes into creating a building – part of this, you may actually see disinflation as a result of the trade war.
“Australia is really interesting right now. It is going to be very resilient, given this period of uncertainty, as it has far less exposure to the trade war relative to other countries in Asia Pacific.”
