ING REIM is not ruling out the possibility of a double dip recession in 2011 if a number of risks to the incipient economic recovery materialise. The main risk is deleveraging, the fund manager writes in its Global Vision 2011 report published on Friday.

ING REIM is not ruling out the possibility of a double dip recession in 2011 if a number of risks to the incipient economic recovery materialise. The main risk is deleveraging, the fund manager writes in its Global Vision 2011 report published on Friday.

'Should the banks not work through the non-performing loans and distressed properties on their books in a steady, measured way, should they be forced by a regulatory step into rushing the sales process, then it could lead to a renewed bout of weaker real estate values,' Tim Bellman, global head of research at ING REIM said. But, he stressed: 'We don’t think that will be the case, we think there will be a sensible and prudent workout on the part of the banks.'

Commenting on the Global Vision report to PropertyEU, Bellman said: 'Our base case is for a long drawn-out, bumpy economic recovery. There is a risk though, and it is hard to put your finger on what will trigger it. It may be a much more significant sovereign debt crisis than the one we are experiencing so far, another problem with a major financial institution, or a policy mistake by a government or central bank. All these things are unknown but are things to worry about quite a lot.'

Bellman said that investors worried about those risks to the outlook may opt to stay defensively positioned in all investment including real estate in the period ahead. 'They should stick with low leverage, defensive real estate sectors - principally retail and industrial - and low-risk core markets, which in Europe are Germany, France, the Netherlands, Belgium and the Nordics,' he said.

However, investors convinced of the recovery prospects of real estate markets may be tempted to look where the opportunities are and rebalance their portfolios to take advantage of them. Bellman: 'Investors comparing the returns of bonds, equities and other asset classes may start to look at real estate as a relatively safer way to start to take a little more risk in a multi-asset portfolio. Those investors may start to rotate more into cyclical sectors such as hotels and offices in the core growth markets.'