The FTSE EPRA/NAREIT Developed Rental Index recorded a net total USD return of 3.05% in March. The best performing listed real estate market was the U.K., which recorded a total USD return of 6.21%. Australia recorded the lowest total USD return for March of -2.15%. The Catalyst team spent time abroad this month, predominantly in Germany and the U.S., meeting with management teams and property brokers, as well as doing numerous asset tours and site visits.

The stark contrast between the German cities was confirmed, particularly between Frankfurt and Berlin. As a major financial centre, Frankfurt’s population doubles in size during the week as employees commute into the city. This commute is assisted by good transportation systems, especially from Frankfurt international airport, where a train ride into the centre of town takes around 20 minutes. From this perspective, the city makes sense as a Brexit destination for finance houses needing to reduce their U.K. footprint. However, according to the head of German research at CBRE, there have only been 2 to 3 major lettings in Frankfurt due to Brexit thus far and it is unclear as to how much real impact any future relocations of this nature will have on the city.

The contrast with Berlin in terms of atmosphere and energy was evident and Frankfurt seems to lack the same pull as more dynamic cities such as Berlin, Amsterdam or Dublin. Cosmopolitan Berlin offers a certain je ne sais quoi in terms of vibrancy and historical flavour, while remaining affordable in comparison to other large European cities. It is for this reason the city is experiencing the best growth within Germany and attracting big tech and venture capital funding together with the artists and creatives. Berlin is forecast to be the strongest market in Germany for the next 5 years and 40% of recent gross take-up in Berlin has related to the tech/communications sector (another difference to Frankfurt’s financial sector focus).

The belief that the U.S. is ‘over-retailed’ was on the top of our minds and was again confirmed, particularly in South Florida, where there is retail on virtually every block. However, the blatant difference between the best quality retail assets and everything else was clear in terms of location, tenant mix and overall retail offering. And while the tone from retail management teams was noticeably more positive than a year ago, the retail landscape will remain challenging as retailers and landlords continue to adapt to an every-changing consumer. A clear takeaway was that retailers understand even more the importance of being in the best quality physical locations as part of their omni-channel strategies. We continue to favour high-productivity retail assets in prime locations, whether it be in the form of malls, strip centres or high street retail.

Real estate fundamentals overall remain healthy, largely due to relatively low supply and an improved economic growth outlook. Taking the estimated forward FAD (Funds Available for Distribution) yield of 5.05%, and medium-term growth prospects into account, listed real estate currently looks attractive on a risk adjusted basis when compared to the private market, as well as bonds and equities.