GLOBAL - Investors fixated on income security are neglecting risks that are just as likely to impact pricing, according to Schroders' Neil Turner.
In 'top tips' published yesterday, the head of property fund management suggested putative income security predicated on covenant strength often masked weak assets.
"Some investors are ignoring other risk factors that will reassert themselves as the recovery takes hold," he said. "Yields in this space have fallen too far."
He told IP Real Estate: "I understand why investors are concerned about security of income - but it's one risk among a number they should consider. There are risks associated with the building itself, with its susceptibility to technological change and with its location, which may be improving or deteriorating.
"People are ignoring other risk factors that will come back to reassert themselves. Those factors will impact pricing. I can't remember a time when the reliance on covenant strength has been so dominant in investor decision-making."
According to Turner, the narrow risk emphasis extends beyond real estate to other asset classes.
Bond yields for AAA-rated sovereigns were "at their lowest point ever" compared with corporate bonds that may in fact be more financially stable because fixation on the ability of governments to pay out.
Similarly, developed Western equity markets are trading aggressively compared with emerging markets that may offer more value.
On markets, Turner suggested that investors avoiding beleaguered Southern European markets were likely to miss "a number of fundamental attractions" in northern Italian retail, including wealthy households, low levels of supply and the recent liberalisation of opening hours.
"I've never really regarded Italy in the same terms as Greece, Portugal or Spain, which in any case all have slightly different issues," said Turner. "The issue with Italy is economic growth, not debt."
He pointed out that Italy has a primary surplus, unlike the US, France and the UK, which have budget deficits.
Italy has less retail space per capita than the UK, and its price per square metre is lower.
As a result, "Italy's ability to go shopping over the next few years will be greater than the UK's", he said.
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