The listed real estate market cap is expected to grow from $644 billion (December 2005) to around $1tn in 2010, with a strong potential in countries like Japan, the UK and Germany.According to Fidelity research, the average annual return for the 15 years to March 2006 was 11.8 per cent in dollars for FTSE/EPRA NAREIT Global Real Estate Index, compared to 8.85 per cent from MSCI World Index and 6.95 per cent by the Lehman Brothers Global Aggregate Bond Index. The dividend yield for property securities was 3.8 per cent, which is more than twice that of global equity. The improved global economy, supported by low interest rates, has fuelled a strong growth in real estate. The US GDP growth forecast for the next 5-10 years remains upbeat while investors await an end to the cycle of interest rate hikes. Americans led a 7.3 per cent growth in retail sales in 2005. On the heels of healthy job growth and a surging economy, the business sector looks set to start a new round of expansion. Vacancy rates dropped 1.71 per cent during 2005. As supply tightens further, rents are projected to show increases of around 5-15 per cent. The industrial vacancy rate is expected to remain stable. The lodging segment also faced strong growth while the slowing single-family housing market and falling new construction, due to rising costs, are all encouraging multi-family housing investment. The Eurozone’s Economic Sentiment Indicator reached a five-year high in April, while business confidence climbed to a 15-year high in Germany. Though the unemployment rate is also falling from high levels, muted domestic demand has led to a more modest GDP growth forecast. The UK housing market faced a soft landing in 2005. Despite the deceleration in the UK economy in 2005, better growth is expected in coming years, with stable but rising unemployment and interest rates. Retail rental growth prospects are anticipated to be relatively benign as the consumer-side of the economy has stabilised. Housing market stability should continue, allowing house prices and earnings to realign, thereby easing the affordability pressures. Overall, the outlook for German cities remains mixed, with lower expected vacancy rates in Munich, but a short-term rise in vacancy in Frankfurt and stabilisation in Berlin. The flow of funds towards European property is expected to remain while the European listed property sector is expected to grow, due to expected REIT introductions in the UK and Germany. Asia Pacific is expected to remain the growth leader, led by China and India. The office market in the Asia Pacific region registered solid growth in 2005. Office rents continued to edge upward while a number of markets suffered from a lack of available stock. Demand fundamentals seem strong for 2006, as occupiers source space for expansion. The Government is expected to tighten its monetary policy in Japan as the economy picks up and deflation worries subside. Increasing demand from investors has driven the yields down. Central Tokyo office rents increased last year while vacancy has decreased. Increasing supply may put pressure on office rents in Japan but vacancy is expected to increase. According to the International Monetary Fund, the global economy is expected to grow at 4.9 per cent this year. Moreover, the composition of growth is supportive, with the consumer taking a back-seat to the business sector. But as inflation remains high, short-term interest rates are expected to rise, led by the US. This may lead to a moderation in the capital flowing into the property investments. Our long-term views on property remains strong amid a benign interest rate scenario, as the long-term rates remain low. Job growth will be critical to sustain the trends. Employment conditions have been improving in Japan, Hong Kong and continental Europe. A structural shift towards real estate as an asset class is expected. An ageing population with an appetite for income-producing assets also supports property investments. A supportive macroeconomic environment and improving real estate fundamentals present a positive picture for real estate investments.