Schroder Property shares Top 10 tips for European Real Estate Investing
Neil Turner, Head of Property Fund Management and Mark Callender, Head of Property Research, Schroders share their Top 10 Tips for European Real Estate in 2012 and beyond.
1) We will see a slow and volatile economic recovery – but it will be recovery - our investment strategies across portfolios are predicated on low GDP growth, low interest rates and modest returns, for Europe as a whole.
2) Beware “income secure” real estate - this is often weak real estate but has a reasonably long lease to a reasonable covenant. Some investors are ignoring other risk factors that will reassert themselves as the recovery takes hold. Yields in this space have fallen too far.
3) A period of low economic growth should mean above average income returns at the portfolio level will be a great starting point for a Fund Manager - construct portfolios accordingly.
4) Invest in global facing economies and locations - given widespread government austerity and household de-leveraging, we favour those cities and locations in Europe which are plugged into the global economy. This includes international hubs for financial and business services (e.g. London, Paris), cities in export-orientated regions with strong trade links to emerging economies (e.g. Munich, Stockholm, Stuttgart), tourist hotspots benefiting from growth in Asian tourists (e.g. Berlin, Milan) and major ports benefiting from the growth in world trade (e.g. Hamburg, Rotterdam).
5) Focus on tech hubs and locations favoured by the creative industries - we are currently seeing rapid growth in the IT and creative industries driven by social networking, on-line advertising, cloud computing, etc. A good way of gaining exposure is to invest in established tech hubs (e.g. Bonn, Karlsruhe, Reading, Stockholm, Utrecht), university cities (e.g. Augsburg, Cambridge) and districts favoured by high-tech startups (e.g. Old Street - London, Silicon Allee - Berlin).
6) Take on risk that is commensurate with the market fundamentals - stronger economies, such as the Nordics and Germany will absorb space at a faster rate than most of Europe. Assets that offer active asset management strategies in these locations should offer interesting opportunities.
7) Keep monitoring property markets in peripheral Europe - while we are cautious about investing in peripheral Europe (i.e. Greece, Ireland, Italy, Portugal and Spain) over the next few months because yields are likely to rise further in parts of those markets, we don’t believe that all five countries should be tarred with the same brush. In particular we think that the retail market in Northern Italy has a number of fundamental attractions (e.g. wealthy households, low provision of modern retail space, the recent liberalisation of opening hours).
8) If your strategy can benefit from the judicious application of debt – do not be afraid to use it - but the strategy should not rely on large amounts of it being available. The LTRO may have helped provide liquidity, but wholesale markets remain dislocated and banks still need to reduce their assets and increase capital in Europe.
9) Invest in retail property that dominates its catchment area - the rapid growth of on-line retailing is a serious challenge to traditional bricks and mortar retail property. Retail tends to be a “winner takes all” property market and we strongly favour schemes which dominate their catchment area, either at the macro level (e.g. large shopping centres and retail parks), or at the micro level (e.g. convenience retail). Page 2 of 2 Registered Office at the above address. Registered number 1188240 England VAT Registered number 243 8687 30 Authorised and regulated by the Financial Services Authority. For your security, communications may be taped or monitored.
10) Avoid markets with high vacancy rates - it will take several years of sustained economic growth before those property markets with high vacancy rates (e.g. Amsterdam office, Frankfurt office, Lyon industrial) get back to equilibrium. In general rents in these markets are unlikely to recover before the second half of the decade.
Neil Turner, Head of Property Fund Management, Schroders comments:
“During 2012 and beyond we will continue to see slow and volatile economic growth in Europe but ultimately it will be recovery. The investment strategies across our portfolios are predicated on low gross domestic product (GDP) growth, low interest rates and modest returns for Europe as a whole. With this in mind, constructing portfolios with an income focus is clearly very important.
However, we are also exploiting those parts of the European market that will enjoy faster economic growth due to links to other (faster growing) regions of the world, demographic change or structural change within the property market itself.”
For further information, please contact:
Estelle Bibby, Institutional and Property PR +44 (0)20 7658 3431 / Estelle.bibby@Schroders.com
Note to Editors:
For professional investors only. For trade press only.
Schroders has managed property funds since 1971 and has £9.6bn (EUR 11.5 billion / US$14.9 billion) of gross property assets under management (at 31 December 2011) and has around 90 property staff located in 9 offices across the UK and Europe. All of the property funds referred to are unauthorised collective investment schemes as defined in the Financial Services and Markets Act 2000. Promotion of these funds is restricted and access to full information about these funds is only available to those exempt from the restriction. For further information about Schroders’ property business visit www.schroderproperty.com.
Schroders is a global asset management company with £187.3bn (€224.2 billion / $291.0 billion) under management (at 31 December 2011). Our clients are major financial institutions including pension funds, banks and insurance companies, local and public authorities, governments, charities, high net worth individuals and retail investors. Further information about Schroders can be found at www.schroders.com.
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