Returns of 8-10% feasible but difficult: Henderson

Real estate investment returns of 8-10% are achievable in the risk-averse aftermath of the financial crisis, but investors will need a deep understanding of their markets to be successful, according to Henderson Global Investors.

Speaking at an HGI investment briefing in Amsterdam recently, senior analyst Michael Keogh said that rental growth will not be the key driver of returns across the main property sectors for the next four years. Keogh said some pockets of growth are forecast in the main real estate sectors from 2011 to 2014. For instance, the weighed average for the office sector in key markets is expected to peak above 4% in 2013, but will dip below that level again the following year.

Outlining Henderson’s own investment strategy, Keogh said the focus would be on a controlled ramping up of investment in the period 2009 to 2011. Last year, Henderson focused on buying low-risk prime assets in ‘overshooting’ core Europe before moving on to selling selected properties in the UK.

In the first half of 2010 Henderson began looking at acquiring low and medium-risk prime assets in core Europe before re-entering more stable markets that were lagging the frontrunners.

Keogh said Henderson will consider more secondary assets in core markets, followed by prime assets in fringe markets during the second half of this year. The firm will consider moving up the risk curve in 2011, followed by exiting sectors and markets that are overheating. Henderson has singled out expansion in the under-resourced sectors of European retail warehouses and outlet malls as interesting opportunities.

Keogh cautioned, however, that several European country markets could potentially be at risk of further falls in capital values as they did not undergo the level of corrections seen in the UK (more than -30%) and Ireland (more than -50%). The list of countries with potential for further declines include France, Norway, Spain, Denmark, Sweden and the Netherlands.