GLOBAL - Secondary properties in the developed world should be given serious consideration ahead of prime real estate, ING Real Estate Investment Management (ING REIM) has said.

The asset manager argued that, following bidding wars in prime markets, secondary towns were an area institutional investors not adverse to risk should examine, as it published a report arguing investors should increase their exposure to real estate from current low single-digit levels.

Timothy Bellman, global head of research and strategy, said secondary properties in an "increasing variety of cities" were beginning to offer opportunities, after ING said a "bidding war" over prime assets had sent the spread between primary and secondary assets soaring.

"Properties that are not in the best street in the best location - that are one street over or have a tenant issue that needs to be addressed - start to be relatively attractively priced, with the prospect for them to show outperformance above and beyond the prime properties in the period ahead," he said.

However, in its report 'The Case For Real Estate 2010', ING REIM went on to caution that due diligence was needed when looking at these secondary properties as investment opportunities.

The report added: "We would suggest some caution, with a need to distinguish between 'good' secondary, which will benefit from the repricing toward prime, and the many poorer-quality secondary assets that have some fundamental flaws."

Bellman said that while the area was not without risk and required good asset management skills, it was likely to be where the "best pockets of value" would lie in the near future.

Speaking of the report's insistence that instututionals should seek to increase exposure to real estate - with pension funds currently only investing 2.2% of all assets on average - Bellman said the concern of illiquidity offered by the asset could be addressed.

ING suggested pension funds increase their property exposure to 15%, with Bellman pointing toward unlisted real estate multi-manager opportunities, which have increased in the last three to four years.

He said  the approach offered scope for smaller investors, while also offering limited liquidity provisions.

"In 2010, unlisted real estate markets - disparate places like the US, increasingly parts of western Europe such as Germany and France, and before that even in Asia Pacific, Australia in particular - had all stabilised and started to rebound quite strongly," he said.

Bellman said investors looking to act now had not seen the last of the post-recession advantages.

"Previous cycles suggest the second and third year after the beginning of the recovery, while you lose some of the first-move advantage, you don't necessarily lose all of that advantage and can achieve the type of target returns the investors look for from the asset class," he said.