UK/GLOBAL - Pension funds can still find good short-term property investment opportunities over the coming months but the overriding priority will be to rebalance their portfolios, according to Alessandro Bronda, head of property investment strategy for Aberdeen Property Investors.
Speaking at a media briefing today, Bronda said: "Some of them (institutional investors) are facing the problem that they have to rebalance their portfolios because they are a bit overweight in property. But that is a short-term problem."
According to Bronda, countries where property is not so overvalued offer good short-term opportunities for institutional investors, including pension funds.
"It always depends on their risk profile, but Finland is a good bet at the moment. Greece is also and Luxembourg offers good opportunities," said Bronda
"There will be opportunities to buy from owners selling at discounted prices. There will be more and more of these coming onto the market in the coming months," he added.
Owners struggling to refinance and being forced to sell at discounted prices are expected to trigger this, and yields could rise in former ‘bubble' countries like the UK and Ireland, making them more attractive in 2009 when distressed selling begins.
At the moment, however, global commercial property investment flows are slowing and capital values are declining as a result of higher costs of capital, falling valuations and the worsening economic outlook.
According to Broda, rental growth has a "pretty dismal outlook for 2009" in major cities like London, Dublin, Frankfurt and Singapore, which will also experience weakened returns for 2008 and 2009.
Asia's property markets, in particular emerging markets such as India and China, are not immune to the financial crisis but are expected to be more robust than the European markets, thanks to their relatively sound economic footings, labour markets and demographics that favour continued urbanisation.
"Over the coming five years we are most positive for Asia. Asia has very strong fundamentals and despite the financial crisis, the long-term positive outlook for Asia remains intact, however, if you are investing in Asia you also have to accept a higher level of risk," said Bronda.
The UK is expected to be the first real estate market to recover in Europe, as it was the first to see prices correct, and will begin showing signs of improvement in 2010.
Bronda said he expected to see more equity being deployed back into the UK in 2009, but said investors were waiting for prices to fall further before buying. Paris, Madrid, Oslo and Dublin are also amongst some of the markets where prices are beginning to correct quickly.
According to Bronda, there will be higher institutional property allocations made in the long-term.
"We also expect that some institutions will retrench from other riskier asset classes like hedge funds and private equity and that this capital will be moved towards property and infrastructure," said Bronda.
The UK, Benelux and Nordic countries like Denmark were described as being good long-term opportunities.
Aberdeen Asset Management also revealed overall, within its multi-asset portfolios, the firm prefers equities to property and government bonds.
Aberdeen Property Investors, the property investment arm of Aberdeen Asset Management, currently has approximately €30bn of property assets under management in Europe, Asia and North America.
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