Yo-Yo Real Estate Returns Make LifeTough For Investors

By Investments

Finding quality commercial real estate is becoming more difficult for investors around the world because of the diverging performances of the sector.

With a changing landscape of flows and yields, one real estate expert says there are still profitable opportunities to be had but caution had to be exercised.

Anne Breen, of fund manager Standard Life Investments, said: “Taking an active and selective approach to real estate investing is more important than ever.

“Making the right assessments of geographical trends, asset size and changing retail formats is a vital part of building a diversified real estate portfolio.

“However, if judged correctly, investors may be able to capture a relatively stable income; with high running yields meaning annual returns between 6% and 8% a year are feasible, as long as the economy navigates a path into stronger growth.”

Rock bottom

Since commercial property hit rock bottom in 2009, performances have fluctuated widely worldwide.

For instance, those buying in quality UK shopping centres will have seen their investment increase by 22% over the past three years while those in the poorer centres will have seen a fall in value of 10%.

Those investors who put money into US super malls would have seen an average return of 15% last year, with some investors in the top malls seeing a return of 30%.

Investor demand is also fuelling price increases in office markets especially in key international cities such as London, Paris, New York and Munich.

However, the figures for recovery for cities outside of the core centres have been muted especially in Germany and the US, while there’s been little or no recovery in values since 2009 in the UK and France.

The real estate figures underline the effect of poor economic growth in the corporate sector.

Worst to come

Indeed, things may get worse before they get better since figures for the UK last year showed it was the worst for retail failures since 2008 after more than 4,000 stores closed, affecting more than 48,000 employees.

Property experts believe the 2013 could be as bad since business surveys suggest that three in 10 UK companies are currently losing money with 25% of them only being able to pay the interest on their debts.

Investors can still find opportunities especially with those firms who operate ‘click and collect’ opportunities where buyers can pick up their online purchases in showcase stores.

Property analysts are also pointing to the potential impact of banks offloading their bad debt properties at discounted prices on to the market.

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