GLOBAL - Concerns over the fragility of the US economic recovery have caused European institutional investors to reassess the attractiveness of the country's real estate market.
The US real estate market has seen a rise in foreign capital inflows, and this is expected to continue to grow going into 2011.
Jones Lang LaSalle's latest figures for the US show prime yield compression accelerated in the second quarter, adding that the country had a slow start to 2010, but that investment markets were now "ramping up".
But the US Federal Reserve's recent cautious assessment of the economic outlook for the country, as well as other negative economic indications, could yet threaten the upward trend.
A large Dutch pension fund told IPE Real Estate this week that it would reassess its view of the US market following a number of economic indicators flashing negative, but declined to comment further until it had made any conclusions.
Invesco Real Estate predicted in its latest European real estate report that global capital flows were likely to favour the US, stating that "an expectation that the US is on the brink of a 'vintage year' should focus global attention on core US markets".
However, the report also noted concerns over the sustainability of the US economic recovery, particularly in relation to weak employment growth, observing that the recovery had been "surprisingly jobless so far".
Speaking to IPE Real Estate, Mark Chamieh, head of marketing for Europe at Pramerica, agreed a lot of capital was currently targeting the US on the perception that many of the country's open-ended core funds now represented good value.
But Pramerica's latest US Quarterly report observed that the "near-term path for the commercial real estate market is clouded amid 'unusual uncertainty' in the US economy".
It added: "Concerns abound that nascent economic growth may be stalled by weak job creation, possible deflation, the winding down of government stimulus and the potential impact of a downturn in Europe and lower growth in China."
Henrik Kolind, head of property investments at Sampension, revealed that the Danish pension fund manager was interested in investing in non-listed real estate in the US, now that the right time to invest in listed opportunities was likely to have passed.
But other investors, such as Austria's largest pension fund VBV, are not so sure and happy to adopt a wait-and-see approach.
Günther Schiendl, chief investment officer at VBV, said: "We haven't invested in US real estate before the crisis, and we have not yet moved in.
"It is very difficult to grasp the facts and to come to a conclusion."