United States


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In case you missed these Savills Studley notes:

Office Employment Gains in 2017 Fail to Match 2016's Performance

Take-Aways from the Fed's December Minutes




•Washington Real Estate Investment Trust is acquiring 398k sf Arlington Tower in Rosslyn, VA for $250 million.

•Axa said to be in negotiations to buy a stake in the one the largest retail centers in the UK (the 1.8 msf Bluewater mall.)


Quant hedge funds set to surpass $1tn management mark*-- nearly double the level of 2010. ALSO: Connecticut gets windfall from hedge funds, tax prepayment rush.

•More banks warn of US tax reform charges*

Two-year MBAs lose their allure, but an MBA is still a great boost for salaries

•Is U.S. PE activity at full capacity?


•Once-hungry investors pass on meal-kit start-ups.*


•Why the automated future is bright* and an opposing view.

•Ray Dalio of Bridgewater sees Americans’ debt as a coming drag on growth and markets.* (Just four large countries have a higher debt burden than the U.S.*)

•Investors finally seeing signs of inflation*

Pimco, Citigroup sound complacency alarm for global economy*

Retailers get bump* from holiday season vs. Why some shopping malls may be in deeper trouble than you think


•Welcome to the office health center*

•How “gamification” enhances productivity in the workplace

At the risk of stating the obvious…plants are good for the office.

•EY says that WeWork is the Amazon of the office sector.


London Edges Out NY as Top City Among Foreign RE Investors (AFIRE)

IN SHORT: Among foreign investors, interest in New York has slipped and London has assumed first place as the number one global city for their real estate investments. For the first time, Los Angeles has tied New York as the number one city in the US, according to the results of a new survey taken among the members of the Association of Foreign Investors in Real Estate (AFIRE). In last year’s survey, London ranked third globally; Los Angeles ranked second among US cities and fourth globally. AFIRE members are among the largest international institutional real estate investors in the world and have an estimated $2 trillion or more in real estate assets under management globally. The 26th annual survey was conducted in the fourth quarter of 2017.


On Brexit

 “A year later, foreign investors are less concerned about the ramifications of Brexit,” said, Edward M. Casal, AFIRE’s newly elected chairman, and chief executive, global real estate, of London-based Aviva Investors, explaining London’s rebound. “At the same time, the London market has been buoyed by several large sales over the last year. London has a number of attributes as a location for investment, including a stable rule of law, transparency, and use of the English language. In addition, a favorable time zone for international business, deep labor pool, and cultural attributes also help.”


Rounding out the list of top five global cities, in order, are: New York, Berlin, Los Angeles and Frankfurt.

Significantly, San Francisco, which has been on investors’ top five global cities list since 2011, fell into 11th place, and Washington, DC continued its slide among global cities, falling from 15th place last year to 25th this year.

New York had been named the top US city for the last seven years, holding a substantial lead over Los Angeles. As recently as 2014 Los Angeles was in fifth place among US cities. It only moved into second place in 2016. The remaining top five US cities, in order, are: Seattle, Washington, and San Francisco. Seattle moved up from fourth place and Washington rejoined the list after falling off into sixth place last year.

“With the growth of on-line shopping, foreign investors continue to rank industrial / logistics properties as their number one investment opportunity,” said Jim Fetgatter, chief executive of AFIRE. “The cargo coming into the Port of Los Angeles represents 43% of all cargo coming into the United States. Respondents also say on-line shopping is likely to have the biggest effect on real estate over the next five years. With these as benchmarks, it’s easy to see why investors would be bullish on Los Angeles.”

In 2010, industrial real estate was lowest-ranked among leading property types. This year, and every year since 2013 it has ranked first, except for 2014, when it was second-ranked. This year, retail property fell into fifth place; multi-family and office remained in second and third places respectively, and hotels, long in fifth place, moved into fourth.

US Real Estate Remains Most Stable and Best Opportunity; Investors Retain Strong but Cautious Interest

With 58% of respondents’ votes, the US remains the country considered the most stable for real estate investment. Germany again took second place with 20% of the votes, and Canada remained in third place with 12%. The UK moved into fourth from fifth, while Australia fell from fourth to fifth.

Eighty-six percent of respondents say they plan to maintain or increase their investment in US real estate in 2018. The US also continues to lead the world in terms of offering the best opportunity for capital appreciation, followed by Brazil, remaining in second place. China and Spain both moved up from a sixth-place tie last year, taking third and fourth places respectively. The UK fell from third to fifth place.

At the same time, members are cautious, expressing concerns about where the industry is in the typical real estate cycle. They cited concerns about interest rate risks, high valuations, the impact of emerging technologies on retail and other property sectors, oversupply in some markets and property types, and possible economic and political missteps which could affect real estate by triggering an economic slowdown or disruption in the financial markets. Nonetheless, by a substantial margin, the US was ranked as the number one country for planned real estate investment in 2018 followed by the UK, Germany, Canada, and France.

Survey respondents also cited several strengths of the US market including the United States’ strong, stable economy, transparent capital markets, and reputation for innovation. As alternative asset classes they pointed to: senior housing, infrastructure, medical office buildings, and student housing.

Strong Showing for Germany; Emerging Markets Shift

For the first time since the question was first asked, two German cities are included among the top five global cities: Berlin in third place, falling from second last year, and Frankfurt, making this list for the first time. Brazil regained its foothold as the number one emerging market, moving up from third place to replace China, which fell to second place. India moved into third place from fourth, Mexico fell from second place to a tie for third with India, and Colombia entered the list of top five emerging markets in fifth place.

Fed Eyes Financial Conditions as Possible Source of Inflation (Bloomberg)

IN SHORT:Inflation continues to elude markets (and the Fed). An index of U.S. financial conditions, signaling the easiest conditions since 2000 (after the run-up in equities) has the Fed beginning to wonder if they will need to address inflated asset prices in order to avoid over-inflated consumer prices. (Note that despite the aggressive increase in yields in the 2-year sector, yields at the longer-end of the curve have remained remarkably steady.)


The last time Goldman Sachs Group Inc.’s financial conditions index was pointing to a market environment this good, its then-chief economist was using the gauge to analyze the effects of Federal Reserve decisions that he now helps make.

New York Fed President William Dudley developed the index in the 1990s while at Goldman to create an alternative way to measure the impact of monetary policy on the economy. Now, with the index signaling the easiest conditions since 2000 after a big run-up in U.S. stocks, Fed officials are starting to wonder if they will need to address inflated asset prices in order to avoid over-inflated consumer prices.

An account published Jan. 3 of the Dec. 12-13 meeting of the interest-rate setting Federal Open Market Committee, which Dudley vice-chairs, revealed a debate over the risks that easy financial conditions could lead to the kind of economic bounce that would spur unwanted inflation and warrant faster rate increases. A few officials aired the view that it already may be getting started. Policy makers also published projections after the meeting that show their median forecast was for three rate hikes this year. Outgoing Fed Chair Janet Yellen then explained, in her final scheduled FOMC press conference, that part of the reason why that number wasn’t four was due to uncertainty over why inflation had decelerated in recent months. Yellen will be replaced by Fed Governor Jerome Powell when her term expires in early February.

That question over low inflation will probably need to be resolved before officials feel confident enough to step up the pace of tightening to counteract rising stock prices and low long-term interest rates, which are key reasons why financial conditions have eased.

U.S. stocks hit record highs as President Donald Trump signed a $1.5 trillion package of tax cuts into law, shortly after the Fed’s mid-December gathering. The lack of upward movement in long-term interest rates -- even as the Fed raises short-term rates -- is also contributing to the improvement in financial conditions indexes. At the December FOMC meeting, “many participants expected the proposed cuts in personal taxes to provide some boost to consumer spending,” while “a few participants noted that expectations of tax reform may have already raised consumer spending somewhat to the extent that those expectations had spurred increases in asset valuations and household net worth,” according to the minutes.

Mainstream economic theory suggests spending encouraged by the “wealth effect” from higher asset prices will reduce unemployment and push up inflation. But inflation slowed in 2017 despite unemployment falling to a 16-year low.

Further complicating matters, the link between financial conditions and employment isn’t always stable. While easier financial conditions have typically coincided with falling unemployment, the end of the last two economic expansions saw increases in asset prices that didn’t put downward pressure on the jobless rate. Fed officials hope to resolve the inflation question as the impact of one-off declines in the price of certain consumer goods and services, like cell phone plans, fades away. If inflation bounces back to the central bank’s 2 percent target, the current debate shows that financial conditions may weigh more heavily as the Fed considers how quickly to raise rates later this year.

“We continue to believe that the FOMC will probably have to end up adding an extra fourth hike to the three hikes penciled in for 2018 in order to promote a soft landing, given easy financial conditions, tax cuts and growth momentum," Krishna Guha, the Washington-based vice chairman of investment research firm Evercore ISI, said in a Jan. 5 email to clients. In April 2000, when Dudley was at Goldman and the financial conditions index was at similar levels, the stock market had begun to flatten out after a historic increase over the previous several years. The Fed, under the leadership of then-Chairman Alan Greenspan, had been raising short-term rates in quarter-point increments for almost a year.

A month later, the FOMC elected to raise the federal funds rate by half a percentage point, in part to contain inflationary pressures they anticipated would follow from the effects of high stock prices on economic growth. It marked the final increase of the tightening cycle, and the stock market began its plunge into a two-year bear market a few months later.

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