Time to position for the end of interest rate hikes?
Discover key economic and financial metrics, and what to look out for in the week ahead.
20 September 2023
Here we look at the leading indicators in the world of economics.
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An end to interest rate hikes?
Last week, the European Central Bank (ECB) voted to lift its base rate by +25bps to 4.50%, with economists widely anticipating this to be the last rate hike of this cycle. The ECB is not likely to be alone in this approach.
On Wednesday, economists expect the US Federal Reserve to keep its interest rate unchanged at a target range of 5.25% - 5.50%. This may be a sign that it has concluded its hiking cycle. However, with inflation in the US accelerating for two consecutive months in August, Wednesday's decision could just be a pause.
In Japan, Friday's interest rate decision is also likely to see no change. However, bucking the trend, governor Kazuo Ueda recently discussed the possibility of ending Japan’s period of negative interest rates by the end of the year.
Meanwhile the Bank of England (BoE) is expected to lift its base rate by +25bps to 5.50% on Thursday. Economists still expect this to be the last of this cycle, but UK inflation data will provide more colour on the future path on Wednesday.
The case for living sectors
In our latest UK Living Sectors Investor Survey, institutional investors have outlined ambitions to invest £45bn in the UK Living sectors over the next five years. By 2028, c.71% of the 50 institutional investors surveyed (with £75bn in Living AUM), are expected to significantly increase their exposure to the Living sectors, with 29% planning to double their current exposure and a further 20% increasing their exposure by between 80% and 100%. The Build to Rent (BTR) and Purpose Built Student Accommodation (PBSA) sectors are the most acquired Living investors, with 93% and 62% of survey respondents currently active in these sectors, respectively.
While 40% of investors surveyed are currently active within the Seniors Housing sector, this is expected to increase to 67% within five years. Overall, investors in the Living sectors can benefit from its strong counter-cyclical features and inflation-matching characteristics that can help investors achieve consistent returns during periods of uncertainty.
ESG opportunities in obsolescence
Our ESG Property Investor Survey, which represents 45 respondents with £300bn in AUM, saw 76% of respondents aim to improve the efficiency of their existing properties. Under 60% are looking to acquire poor ESG-performing assets to upgrade and c.20% are looking at disposing of poor ESG-performing assets.
The survey also highlighted that ESG due diligence will likely become more commonplace. 61% of respondents require an EPC Plus or pathway report before an acquisition, while over half of respondents require CRREM analysis before a new acquisition, to understand the asset's impact on portfolio performance.
