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Jon Cheigh, head of global real estate, Cohen & Steers.

The global real estate opportunity is huge. It’s roughly a $2 trillion market with 400 different companies. And real estate is a local business. Part of what we do is focus on the supply, demand, fundamentals in each and every market globally, and identify where there are very, very attractive mispricings and valuation and investment opportunities. Let’s review each region globally and talk about how we see fundamentals behaving currently and where they’re going, as well as where are the best opportunities. Let’s start in Asia.

In the case of Japan, many of the companies are very focused on the Tokyo office market. The Tokyo office market has seen a very healthy decline in vacancy rates over the last five years. In fact, their vacancy rate is as low as it’s been in 10 years. As you might expect given very little new supply and new tenants scrambling to find new space, office friends are growing around five to six percent and we’ve recently seen that number reaccelerate from what it had been a year or so ago, so the fundamentals of the Tokyo office market are very healthy to strong. As a result, we see very good investment opportunities in both the Japan developers as well as the Japanese REITs.

Australia is also another significant market in Asia. We see very good fundamentals both on the office side as well as the logistics and warehouse sectors. On the office side with relatively healthy GDP growth, as well as in the case of Sydney, what had been negative amounts of new supply, meaning office buildings being taken out of service either to be turned into things such as residential or to be changed into some other higher and better use. With healthy demand and with negative supply for the last couple of years, we’ve seen a double-digit rental growth within the Sydney office market. While that has slowed down from double digits, more like mid single digits, the Sydney office market is still a market that’s doing very well, and as a result presents a very good investment opportunity for us.

The warehouse sector in Australia is also important to talk about. Globally, what we’ve seen in the industrial sector is very strong growth the last few years, so why is that? It’s players such as Amazon or Alibaba in different markets because more and more of us are buying more and more things online. Those are more things that then need to go through a warehouse somewhere and certainly eventually a warehouse close to our home. The e-commerce penetration rate, which is rising globally, and continues to rise, has been a significant tailwind for all owners of warehouses globally except for those in Australia.

Amazon, while dominating in many markets globally, only began it’s Australia DAMA style business about 12 to 18 months ago. So in our view, while industrial fundamentals in Australia the last few years have been good, with the emergence of Amazon and our expectation that e-commerce growth rates are going to accelerate in Australia, we would expect that the phenomenon we’ve seen globally—a very strong warehouse rental growth—will then also happened in Australia. So what has been good growth will become great growth.

Let’s turn it to Europe.

When you look at a place like the UK, certainly events such as Brexit, which are certainly difficult to calibrate where it is going to go next, it will have a negative impact on sectors such as office and residential. But again, the real estate industry is quite broad and diverse and so whether we choose to invest in warehouse companies in the UK, whether we want to invest in student housing companies—where they’ve actually benefited as the pound has depreciated versus the euro so it’s become more attractive for EU students, where it’s depreciated versus currencies in Asia, so it’s become more attractive for students in Asia to then do university within the UK.

There are a variety of different industries such as these that can still be very attractive from a fundamental standpoint and as a result, then represent very good investment opportunities for us. Let me turn next to the U.S.

Now, the U.S. is going to have a wide variety of different sectors. Three sectors that I want to focus on include data centres, industrial, as well as the overall residential sector. In terms of data centers and industrial, both continue to benefit from the secular technology trends. In the case of industrial, it’s what I talked about: e-commerce penetration continues to grow, more and more stuff need to go through a warehouse rather than through a storefront.

In the case of data centres, with the amount of data traffic that continues to increase, whether it’s companies adopting and moving to the cloud, whether it’s all of us uploading more and more photos each day or watching more and more YouTube each day, all of that has translated into very strong demand growth, and as a result rental growth, in the data centre space.

And then the last sector and opportunity I want to focus on is U.S. residential, and this tends to be the rental apartment space. As you all know, 10 to 12 years ago, the U.S. had a housing bubble. We built too many houses. And what that meant was, we had a lot of aggressive and exuberant single family home developers and multifamily home developers. What tends to happen after you’ve had a housing bubble, you tend to go from building too much of something, or people buying too much of something, to the next cycle not building enough of it, and people are not buying enough of it. What we see is that the U.S. has become under housed because we’re not building enough new housing. This is why you might read about affordability issues, not having enough housing. What that means for owners and operators of rental apartments is that they have pricing power, that they’re able to increase their rent. So we see a very good opportunity within the urban apartment rental space.

Renaissance Global Real Estate Fund