LaSalle sees UK re-pricing as best bet since early 1990s

The re-pricing in the UK real estate market offers one of the best acquisition opportunities since the early 1990s, according to LaSalle Investment Management. In its Investment Strategy Annual report released on Monday, LaSalle said that the UK is leading the way in terms of re-pricing while for structural reasons the US market has been slower to re-price its real estate assets. Australia, Korea and Germany are other countries where re-pricing is well under way. La Salle is a leading property investor and manages around $52 bn in assets.

Real estate markets across Europe (excluding the UK) are expected to see lower investment returns in 2009, but will offer a rare opportunity to acquire high quality assets at attractive prices. For cash-rich investors not dependent on bank financing, opportunities will start arising in 2009 through acquisitions from forced sellers. Countries most at risk from the slowdown are Spain, the UK and the Netherlands where both commercial and residential property are over-heated, LaSalle said.

Commenting on the report, Jacques Gordon, Global Strategist at LaSalle Investment Management said: 'For investors with capital and the confidence to look through the downturn, 2009 will provide some fantastic opportunities.'

In this challenging environment, LaSalle advised, the first objective for investors is to keep a more defensive strategy by protecting income streams and looking beyond current market conditions in order to take advantage of capital shortages and re-pricing. LaSalle advised European investors should start to tilt their portfolios from offices towards retail as it proves a more defensive stock with restrictions on demand making it more recession proof.

LaSalle recommended 'back to basics' portfolio management, which means managing liquidity well and staying close to tenants. It also suggested an emphasis on markets and sectors that are recession-resistant. These include healthcare, federal or national government capitals and necessity (as opposed to discretionary) retail.

In terms of attractive sectors, LaSalle recommends REIT shares; fund units; non-performing loans or pools of partially performing loans; and defaulted land deals or development deals in need of recapitalisation, but priced such that investors get incomplete improvements at close to zero cost.

Office take-up is expected to be lower in Europe next year as corporate expansion and relocation decisions are put on hold. Many projects will be put on ice with the London, Madrid and Frankfurt markets most at risk. Occupier demand for prime shopping centres remains high across most of Europe but has weakened in Sweden and France, LaSalle said.