GLOBAL - The recovery in the global real estate markets will not be synchronised in contrast to the downturn, marking a return to the traditional benefits of diversification, according to Schroders.
Mark Callender, head of property research at Schroders, told delegates at the Investment Property Databank (IPD) European conference in Amsterdam, part of the IPD/IPE Real Estate Congress, that he was confident markets would recover at different points in time and at different speeds. He said an internationally diversified portfolio would therefore be less volatile than a purely domestic one.
Callender pointed to the fact that yield corrections between the end of 2007 and the end of 2009 were not uniform across international markets. For example, yields in Germany, Switzerland and Denmark - markets dominated by local investors that see real estate as a "safe haven" - moved much less than those in the UK, France and Sweden, where property is regarded more widely as a high risk asset class.
Callender highlighted different economic factors and explored how these would affect the recoveries of different real estate markets, including levels of household debt, government deficits, unit labour costs and population growth in cities.
He said investors should consider risk controls to limit their exposure to markets which are highly integrated into the world economy, such as financial centres and port logistics, while setting minimum weightings to sectors that are relatively insulated from the global economy, such as retail and government-dominated office space.
During the same session, Gianluca Marcato, associate professor at Reading University, showed that the correlations between markets are always lower when markets are going up and higher when markets fall.
It is during the latter phase when the benefits of diversification are most sought by investors, but it is precisely at this time that the effects of diversification are at their lowest, he said.
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