GLOBAL - Investors should be able to expect double-digit returns from global commercial real estate investments over the medium term, according to Standard Life Investments (SLI).
In its latest multi-asset research report, the fund manager forecast returns from real estate, underpinned by resilient income yields, to beat cash comfortably.
Standard Life Investments said that, in an environment of low interest rates and a moderate economic recovery, the relatively secure yield from real estate remained attractive.
David Paine, head of real estate investment, said: "Recovery is materialising in most global real estate markets, leading to tenant demand improving as occupier confidence and business investment increases.
"Vacancy rates are falling as a result, and strong rental growth is being recorded in some of the highly cyclical supply constrained office markets such as Hong Kong, central London and Paris.
"Globally, given that development financing disappeared rapidly as a result of the credit market problems, the supply of good-quality new space is at low levels in most markets, and we expect this to continue over the medium term, leading to an improvement in yields."
The report also recognises that institutional investors are increasingly turning to real estate for its inflation-hedging potential, but it warns that the asset class typically excels in this regard during periods of above-average economic activity.
Standard Life Investments said real estate returns were expected to provide "a degree of inflation protection going forward" and that investors were expected to increase their exposures.
The report said: "This may mean that the soft patch for real estate prices that we expect later this year could be shallower.
"Indeed, it may not materialise until toward year-end if sentiment increases sharply as a result of inflationary concerns and more capital is allocated to the sector."
Paine added: "As investors have become more concerned about inflationary pressures, they are increasingly looking to real estate to provide a hedge - hence allocations to the asset class are increasing, and we expect this trend to continue."
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