26. Mai 2010 
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Global real estate markets at recovery inflection point
The recovery in global real estate markets is playing out rapidly in 2010, faster than forecast at the end of last year, and has now reached a crucial inflection point in terms of sustaining momentum, ING Real Estate Investment Management (ING REIM) said in its latest “Global Vision Update” research report.
Timothy Bellman Global Head of Research & Strategy at ING REIM said: “There have been clear signs of markets for prime properties stabilising and recovering in the first five months of the year. They’re doing better than we expected in our Global Vision annual strategy paper at the end of 2009, but are now reaching a crucial turning point for the upside. Our analysis suggests that real estate values are not yet being affected by the sovereign debt problems in Europe and we think investors may see returns at the upper end of their expectations in the next few years.”
Bellman added that following the greatest global financial and economic crisis since the 1930s, it is axiomatic that any market outlook will be hedged with a fair degree of risk and uncertainty. A specific risk for real estate investment is the scale of market debt that needs to be refinanced over the coming years.
Against this background, ING REIM believes real estate investors with a low appetite for risk will want to continue to focus on the retail and industrial sectors, which tend to exhibit more stable returns in a downturn and to outperform in the early stages of the recovery. Investors with a slightly greater appetite for risk may wish to note that the latest Global Vision forecasts show a recovery in office markets sooner, and a little stronger, than previously projected.
Global economic growth prospects appear to have improved. ING Economics forecasts global economic growth at 3.3% in 2010, with the U.S. now expected to grow by 3.0%, the Euro Zone by 1.2%, Japan by 2.6% and China by 11.0%. Anticipated Euro Zone growth has been reduced by 20 basis points as a consequence of the uncertainty arising from the Greek sovereign bond crisis.
In the period between 2011 and 2013, ING REIM forecasts unleveraged average global investment returns of 10.9% a year for offices, 10.6% for the industrial sector and 9.8% for retail properties. For all three sectors the forecast returns are at, or above, the 7% to 10% per year range that institutional investors typically indicate they are looking for from core direct real estate investments.
For a generic low risk investor following a core/core plus real estate investment style, ING REIM believes that such an investor might favour tactical investments in the Americas in prime properties, due to the higher yields (capitalisation rates) the U.S. has historically delivered compared with other markets and the strong prospects when the recovery comes.
In Asia Pacific, economic conditions are stronger; real estate markets recovered earlier, and thus attracted investor interest leading to more intense competition for assets.
In Europe, the UK property market is bouncing back, albeit with some doubts about the sustainability of the pace of the recovery. Elsewhere in Continental Europe, the sovereign debt crisis means the economic outlook seems less certain than it did a few months ago, although certain markets such as France are recovering and prime yields are showing signs of stabilisation and rebound.
Timothy Bellman concluded: “We believe this is a time for cautious optimism and steady, but measured, accumulation of assets by real estate investors. The economic recovery seems more firmly established, albeit with risks remaining, principally the transition from the support offered by various government stimuli into more usual conditions. There are opportunities emerging in all regions but we continue to favour the stronger growing parts of the world – in the U.S. and parts of Asia, for example. Market timing and careful asset selection will be critical for successful investments.”
Timothy Bellman Global Head of Research & Strategy at ING REIM said: “There have been clear signs of markets for prime properties stabilising and recovering in the first five months of the year. They’re doing better than we expected in our Global Vision annual strategy paper at the end of 2009, but are now reaching a crucial turning point for the upside. Our analysis suggests that real estate values are not yet being affected by the sovereign debt problems in Europe and we think investors may see returns at the upper end of their expectations in the next few years.”
Bellman added that following the greatest global financial and economic crisis since the 1930s, it is axiomatic that any market outlook will be hedged with a fair degree of risk and uncertainty. A specific risk for real estate investment is the scale of market debt that needs to be refinanced over the coming years.
Against this background, ING REIM believes real estate investors with a low appetite for risk will want to continue to focus on the retail and industrial sectors, which tend to exhibit more stable returns in a downturn and to outperform in the early stages of the recovery. Investors with a slightly greater appetite for risk may wish to note that the latest Global Vision forecasts show a recovery in office markets sooner, and a little stronger, than previously projected.
Global economic growth prospects appear to have improved. ING Economics forecasts global economic growth at 3.3% in 2010, with the U.S. now expected to grow by 3.0%, the Euro Zone by 1.2%, Japan by 2.6% and China by 11.0%. Anticipated Euro Zone growth has been reduced by 20 basis points as a consequence of the uncertainty arising from the Greek sovereign bond crisis.
In the period between 2011 and 2013, ING REIM forecasts unleveraged average global investment returns of 10.9% a year for offices, 10.6% for the industrial sector and 9.8% for retail properties. For all three sectors the forecast returns are at, or above, the 7% to 10% per year range that institutional investors typically indicate they are looking for from core direct real estate investments.
For a generic low risk investor following a core/core plus real estate investment style, ING REIM believes that such an investor might favour tactical investments in the Americas in prime properties, due to the higher yields (capitalisation rates) the U.S. has historically delivered compared with other markets and the strong prospects when the recovery comes.
In Asia Pacific, economic conditions are stronger; real estate markets recovered earlier, and thus attracted investor interest leading to more intense competition for assets.
In Europe, the UK property market is bouncing back, albeit with some doubts about the sustainability of the pace of the recovery. Elsewhere in Continental Europe, the sovereign debt crisis means the economic outlook seems less certain than it did a few months ago, although certain markets such as France are recovering and prime yields are showing signs of stabilisation and rebound.
Timothy Bellman concluded: “We believe this is a time for cautious optimism and steady, but measured, accumulation of assets by real estate investors. The economic recovery seems more firmly established, albeit with risks remaining, principally the transition from the support offered by various government stimuli into more usual conditions. There are opportunities emerging in all regions but we continue to favour the stronger growing parts of the world – in the U.S. and parts of Asia, for example. Market timing and careful asset selection will be critical for successful investments.”
