REAL ESTATE - European investors are looking to real estate for high yields and low volatility – except Dutch pension funds, which are looking for geographic diversification, according to a RREEF report into the global real estate securities market.
The report, lead-authored by head of Asia—Pacific real estate research Henry Chin, covers the emergence of global REITs, the tripling of the securities market to $900bn (€695bn) at the end of 2006, and long-term returns more than double those of other equities.
The authors see no imminent loss of interest in real estate securities among institutional investors, though they argue that the drivers are diverse. Driving investors in the Netherlands, the US and Australia is a desire to build exposure in global markets.
In contrast, European and Asian investors are looking specifically to increase their allocations in real estate as an asset class, the report found.
The promise of high yields – especially in REITs markets – and diversification benefits as a result of the low correlation between indirect real estate and other equities have also attracted pension fund investors.
Indirect property investment threatens higher volatility than direct investment. However, the report argues that the volatility is still lower than for other equities. In addition, transaction costs are much lower than those for direct investment with liquidity ratios at 10 times those for direct investment.
Specifically on REITs, the report sees the de-listing of $100bn of REITs in the past 18 months as evidence of a possible decline in the US market, although it pointed out that it was more likely to be a "cyclical response" rather than "a fundamental challenge to the REIT market".
Meanwhile, the introduction of REITs in the UK and Germany will boost the smaller, less mature European market, with existing REIT structures in France and the Netherlands already seeing strong growth.