Reporting from the recent MIPIM conference in Cannes, IP Real Estate editor Martin Hurst finds that UK residential holdings are held in high regard after a year of strong performance.
At a panel at MIPIM last week Peter Pereira Gray, managing director, investment division, Wellcome Trust said: "At the moment we find this in UK residential. Overseas commercial real estate in funds have not been able to compete by a very long way with what we have been able to do in the UK."
The institution holds almost its entire real estate portfolio in UK residential, making it virtually unique among institutional investors. "I will seek best risk adjusted return at any time at the moment." The UK has fallen down the league of investment preferences over the past year according to surveys from INREV and AFIRE. Other speakers on the panel were generally of the opinion that it would be difficult to find value in the UK over the next two to three years.
Regulation was also a key concern among visitors to MIPIM this year. Gianluca Muzzi, head of RREEF Italy, spoke of the uncertainty surrounding how and when key regulatory programmes such as Alternative Investment Fund Managers (AIFM) Directive would be implemented and cited it as one of the main questions facing investors in Italy. His colleague and head of RREEF Germany Georg Allendorf expressed concern that new lease accounting regulations would be a drag on sale and leaseback in Germany, a market where corporate culture has traditionally favoured owner occupation.
One of the key themes at MPIM last week was the move up the risk curve to focus on the core plus and value add space. INREV's recent Investment Intentions Survey highlighted a shift in investor appetite but also suggested that managers were behind the curve in their perception of this appetite. German managers Real I.S. and Warburg Henderson are among those focusing more attention in this space currently. Lack of availability of core stock appears to be the main reason for the shift.
A recent survey of members by the National Association of Real Estate Investment Managers based in Washington, DC, confirms this shift and the lack of stock at the core end. Investors in US real estate are largely focused on what they know best - the safe havens of New York City and Washington, DC.
NAREIM's president, Steve Renna, spoke of the need for institutions to consider second tier cites such as some of the smaller urban centres in the US, of which he considered Raleigh, North Carolina, a good example. "It's not 24/7 but it is a young dynamic city," he said. Of the economic recovery in the US he said: "the current rate of employment creation at 190,000 per month needs to rise to a sustained 300,000 if the US is to replace the 8m jobs lost in the downturn."
Renna also said that many US banks are in much better shape today, sitting as they are on US$950bn (€682bn) of reserves. The mood among visitors to MIPIM this year was upbeat in respect of the lending climate, in contrast to the widely held view at the start of 2011 that it would not improve this year.
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