Amid the volatile backdrop of a new presidency, it is U.S. core commercial real estate that offers great opportunity for investment gains, income, and diversification for David Gilbert, president and chief investment officer for Clarion Partners.
“The primary reasons to invest are relatively high current yields, appreciation potential, inflation protection, low volatility, and diversification through a low correlation to stocks and bonds,” Gilbert says. “It's no surprise that institutional investors have been progressively increasing their target allocation to real estate now to over 10 percent in their mixed asset portfolios.”
With U.S. Treasury bond yields recently reaching a 17-month high and expectations that the new Trump Administration will cut taxes coupled with increased infrastructure spending, many investors are wondering whether this is the right time to sell off their real estate positions or begin increasing them.
"The Trump pro-growth policy is a largely deficit-funded expansionary fiscal stimulus package,” Gilbert says. “The economy in both real GDP growth and job creation should benefit over the next three to four years, and I see higher demand for commercial space based on current proposals from the Trump administration.”
For international investors, U.S. core real estate offers attractive current yields and appreciation potential. Given many global concerns such as a slowdown in China, Brexit, European Union uncertainty, and emerging market volatility, the U.S. is still considered a safe haven globally for both institutional and individual investors.
“Currently, there are 1.3 million new households and 2.3 million new jobs being created each year, suggesting strong demand for commercial space,” Gilbert says. “After the energy industry downturn over the past two years, U.S. corporate profits have fully recovered and are on track to grow by 11 percent over the next 12 months, thanks to new government initiatives.”
Moreover, U.S. consumers are in better shape today, with household wealth at all-time highs and accelerating year-over-year wage growth. Gilbert remains bullish to the core.