Arguing the case for property
The past year has seen a sharp turnaround in attitudes towards property, as the asset class gathers momentum.
According to data from Lipper, the past year has seen a sharp turnaround in the amount of net new investments made into cross-border property funds in Europe (see chart below).
There may be a number of reasons for this, as Dennis Lopez , Global CIO of AXA Real Estate, explains when compared to equities and bonds. On the bonds side, it is the case that historically low interest rates as a result of quantitative easing measures cannot go much lower. The downside concern then is that interest rates go up. Thus, the risk is not so much a credit risk as one of fixed rates on longer term bonds.
Regarding equities, it depends on which market is being discussed. They may be fairly valued in certain parts of the world, so they do not necessarily represent the same investment risk as fixed income, but alternatives, including property do look relatively attractive.
In certain regions, such as Europe, there are additional reasons to look to property assets, Lopez adds. Growth expectations are not strong, and property could do well in this type of environment, particularly because property markets did not go into the financial crisis in a state of overbuild, except for some very specific areas, such as Spanish residential.
But lack of overbuilding in commercial office or retail property, implies that there was growth in ‘grey space’, of tenants vacating. Now, Lopez sees sustainable rents going forward amid the growth, and there feels positive about its prospects for generating high single digit to double digit returns – depending on the level of risk taken by the investor.
Comparing the European property market against others globally, Lopez believes the US is showing signs of strong gains in its economy, and that despite some political issues there seems to be sustained recovery there.
Emerging markets have been hit by some currency volatility linked to monetary policy decisions at the US Federal Reserve – the tapering of its quantitative easing programme – and in that environment Europe looks relatively good as a place in which to invest in property. Additionally, Europe offers a number of transparent property markets that are based on ‘global’ cities such as London or Paris, which means demand too is global in nature.
The impact of the foreign investor has been noted in Italy, where the levels of interest have not recovered to the same extent among local investors.
Claudio Albertini , CEO of Immobiliare Grande Distribuzione (IGD) Siiq SpA, one of the major real estate sector players in Italy, says he has experienced this change.
“Over the last months, we’ve noticed a rise in interest in the Italian real estate sector, but it mainly came from foreign investors such as Klepierre, Eurocommercial, Corio, Carrefour, as well as big foreign institutional investors like AXA and Allianz,” he says.
The impact of foreign investors in the area of retail is felt by IGD because its €1.9bn property portfolio is mainly hypermarkets and malls, which it acquires and manages over the long term.
However, the strong presence of foreign investors in the country is not necessarily to be interpreted as a negative sign, as it might instead mean that Italy is still able to attract capital, Albertini adds.