EUROPE - European secondary real estate will pick up over the next 18-24 months - but for now, prime offers the best value, according to David Skinner, investment strategy and research director at Aviva Investors.
"Prime returns are solid in the medium term, but secondary will outperform later," Skinner told an investor conference Friday, pointing to forecast returns to 2015 of less than 6% in continental Europe, 6% in the UK, more than 8% in the US and 9% in Asia.
In some markets - notably Beijing, Hong Kong and New York - prime is back at, or close to, pre-crisis prices.
"The prime recovery shouldn't be a surprise," Skinner said. "It reflects investors looking for secure, defensive assets. But secondary is a late-cycle performer - and opportunities will emerge next year across Europe."
So far, he said, the recovery had been driven not by fundamentals but by falling bond yields.
It was characterised by coordinated policy positions, attractive real estate prices relative to its own history and other assets, and income growth.
In contrast, positive forecasts for secondary were predicated on robust macroeconomic growth.
In the most likely scenario, a 'hard times' market would be characterised by below-trend growth, continued deleveraging and prolonged low interest rates.
In this scenario, investors would adopt defensive property strategies and REITs would outperform.
In the meantime, head of UK retail real estate funds Philip Nell expected to see more secondary assets coming onto the UK market and investors exploiting the increased supply to acquire at marginally cheaper prices.
"Prime in London is currently fairly priced, but secondary is relatively expensive," he said.
Continental Europe fund manager Gil Bar said the two-speed forecast he had issued a year ago had now become a clear polarisation, with Poland and Sweden joining leaders France and Germany, and the rest of Europe lagging behind.
He said growth would be negative this year across Europe, with a recovery in 2013 and the turning point in 2014.
Despite opportunities in Ireland and Spain's troubled economies, he said the timing was "not yet right" given Ireland's mooted ban on upward-only rent reviews.
"The outlook depends on the outcome," he said. "It could change very quickly if transparency returns to the market."
In contrast, opportunities in the Spanish market would come from government agencies looking to offload assets for cash.
Bar said: "The pricing opportunities are not on the market. Creativity is required."
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