Henderson Global Investors: Property's return projections are still attractive

In its latest Think/Global report, Henderson Global Investors examines the prospects for the European, Asia Pacific and US real estate market as the second half of 2010 approaches.

Key points raised include:

· Initial gains buoyed by more positive economic news are weakened by fears of contagion linked to the debt crisis
· Prime yields are believed to be close to stabilising
· Germany, France and the Nordic markets have benefited from an improvement in property's relative pricing and are projected to perform solidly
· Henderson forecasts prime market returns over the next 5 years, equating to circa 8-10% per annum
· Attractive deals are most likely to be found in good markets not yet in the investor arena, or secondary and niche markets, currently overlooked by risk averse mainstream investors

· Buoyed by huge fiscal stimulus and GDP growth, Asian property markets continue to benefit from an upturn in investor sentiment
· Asian commercial properties will outperform other property assets with a compelling economic growth outlook and less policy risk compared to the residential sector
· Henderson sees opportunities in the Singapore and Sydney office markets and China's expanding retail market
· In China, where government attention has turned to curbing inflationary pressure in order to cool the lending markets, a basis for more sustainable long term growth is expected to emerge

· The US property market has experienced a degree of pricing buoyancy over the past few months
· In the acquisition market there has been a flight to quality and focus on primary markets
· The number of acquisitions is expected to continue to increase over 2010, boosting valuations however, present transaction volume remains muted. It is currently approximately 10% off peak
· Sales volume in primary markets is about 1.5 times the volume in secondary/tertiary markets so far in 2010; consistent with the average annual ratio of the past few years
· Current and expected economic and financial market conditions offer investors attractive opportunities across all facets of property investing
· European sovereign debt may encourage global investors to increase their allocations to the US

Mike Keogh, property research manager at Henderson said: "Encouraged by a return to economic growth across the G7, property markets globally have benefited from a marked recovery in investor demand since mid-2009. However, the more recent flight to safety sparked by the sovereign crisis has done little to support a further sustainable wider rally in property pricing. Property, however, remains historically well priced, and by accepting that future performance will not be uniform and very much dependent upon an upturn in occupier demand, we still believe property's return projections are attractive."

Source: Henderson

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