Looking to continental Europe, we believe the European Central Bank remains committed to quantitative easing, given the still-recovering European economy and the central bank's aim to protect the region from external shocks. We have a relatively favorable view of Europe's economic momentum compared with other major regions, as growth may be slower but less likely to decelerate.
We favor select companies in France and the Netherlands that offer attractive valuations, particularly in the high-quality shopping center space, that are likely to benefit from a recovery in retail spending. We like Germany's residential market given its stable rent growth, as well as its office market, but we are generally mindful of valuations and external growth strategies following strong absolute and relative performance over the past year. We also have opportunistic investments in Spain that we believe are well positioned to benefit from a rebound in rents and occupancy as the country's unemployment rate declines and demand recovers.
Slower Economic Growth but Attractive Valuations in Hong Kong
Property fundamentals in Hong Kong have been impacted by the weakening China economy and strong U.S. dollar. Overall retail sales growth in Hong Kong has been declining due to a slowdown in tourist spending. Having said that, we think the non-discretionary retail market, primarily catering to Hong Kong residents, should continue to deliver more steady growth. Meanwhile, office fundamentals in Hong Kong are still exhibiting positive rental trends, especially in the core Central business district, and a low supply backdrop should support operating fundamentals and capital values.
In Japan, the Tokyo office market is experiencing solid growth in occupancy rates to historically high levels. The internal growth prospects for some office J-REITs appear to be improving in our view, backed by rent increases. We remain positive on selective J-REITs that can deliver strong dividend yields or offer attractive valuations.
Australia's economy has stabilized in recent months at a below-trend but still consistent rate of growth. This has driven healthy retail spending at shopping centers in major cities, a trend that has been accelerated by the country's weak currency, which encourages residents to spend at home rather than abroad, including less online shopping through non-Australian retailers. After many quarters of poor operating results, Sydney's office market is beginning to exhibit net demand growth, which may begin to result in occupancy gains over coming quarters.
In Singapore, we prefer quality retail landlords that may be able to deliver resilient earnings in the lackluster economic environment. We remain cautious toward Singapore office REITs, as the pipeline of new supply is likely to pressure market rents over the next two years.
Jon Cheigh and Chip McKinley are global portfolio managers for Cohen & Steers' real estate securities portoflios.