Originally published by UBS Asset Management
REITs began the "Year of the Rooster" resembling a feather duster, returning -4.7% in January and underperforming the broader equities market which was down -0.8%. The weak start to the year comes after a relatively strong 2016, in which the AREITs returned +13%, the highest total return of the global REIT markets. The large-cap, liquid names were the worst hit this month, with GPT -7%, DXS -6.7%, WFD -6.3% and SCG -5.2%, whilst the small-cap names escaped relatively unscathed. There was no stock related newsflow indicating that stock markets still believe Trump's growth pledges. Reporting season kicks off next week and while we have no concerns about the earnings or guidance, we do think that office stocks will have strong headlines while retail will be modest. Those with residential exposure remain blessed by the current cycle so Mirvac Group (AX:MGR) and Stockland (AX:SGP) should perform well, however the weakening pound and modest retail environment in the US means that Westfield Corporation (AX:WFD) should point to lower than expected growth in CY17.
As I wrote in my final 2016 piece, uncertainty caused by the European elections and The Don's daily vitriol should ensure Australia remains a safe haven, supporting demand for our real estate. A lower Aussie dollar will also aid. Despite the soft start to the year, I expect AREITs to deliver a return of around 9% in 2017. Not quite a boisterous rooster but better than a feather duster.