The end of NICE and driven to WINE
The days of ‘NICE’ – the Non-Inflationary Consistently‑Expanding market – are well behind us, as we move to the world of ‘WINE’ – Wild Inflation, Negligible Expansion – which requires a marked shift in investor strategy for some years to come.
Faster. Higher. Longer
With inflation remaining well above the official target, central banks are responding with aggressive rate tightening. On current money market expectations, rates are likely to be higher for longer, ruling out the passive levered beta strategies of prior years and driving investors to look more keenly for alpha returns.
Keenly seeking a hedge
Investors are keenly seeking the right hedge, partly to offset the recent weakness in global demand and mostly to hedge the adverse impacts of high funding costs on equity returns. Australian real estate credit is a strategy that is well positioned to provide this hedge.
Deeply divergent sectors
From an equity investor perspective, real estate sectoral market trends are diverging widely across a booming industrial sector, a resurgent residential sector, an uneven retail sector, and a deeply out‑of‑favour office sector.
Deeper protection in credit
From a credit investor perspective, divergent sectoral trends are not presenting the same degree of risk. Australian real estate values are more resilient, less prone to deep drawdowns that erode equity capital and expose debt capital.
A golden age ahead
In our view, Australian real estate credit is well poised to deliver strongly for investors, with resilience across the cycle and a strong hedge to high interest rates. Moreover, we see considerable scope for this segment to diversify portfolios and improve risk‑adjusted returns.
