Investors must make their real estate allocation this year or risk missing out on the opportunity to achieve maximum returns from the current cycle, says Andrew Thornton, Chief Executive Officer of Internos Real Investors.
Thornton, a founding partner of the 1.6 billion owner-managed real estate fund management business makes his prediction in the latest issue of Internos' strategic bulletin, the decisive eye.
The overriding mood across the sector, based on the views of fund managers and investors, is that risk aversion is still outweighing a reasonable long-term approach to risk assessment. In addition, a number of other factors including inflation, which hasn't been an issue for the last 15 years and may be leading allocators to delay, are conspiring to increase pressure on investors.
"In our view, backed up by a 40-year analysis of real estate cycles, investors should clearly have allocated more than average levels to real estate during 2009-10 and, if they haven't already done so, through 2011," says Thornton.
In terms of geography, key countries or regions to target include Germany, France, Scandinavia, Poland and Central London, which passed their troughs in 2010; however, regions approaching or just past bottom of the cycle, like some major Spanish cities, may represent even better opportunities.
With levels of investment in Europe for 2010 at under half the level in 2007, very few funds are reaching first close at a point in the cycle that offers an unprecedented opportunity to invest in real estate, Thornton goes on to say: "With the right timing, as in all five troughs of previous cycles, real estate comfortably outperforms bonds and may outperform equities, with less volatility and probably lower risk within a portfolio."
"If we are about to enter a period of true inflation in Northern Europe, this possibility, plus what seems to be a clear message from the history of economic and real estate cycles, leads to a compelling conclusion for real estate investors: in terms of lost opportunity, waiting to allocate represents the greatest risk."
"We wonder, is this a case of allocators simply avoiding the due diligence duties of the first closer, or does it portray anxiety about being the first into a new arena about sticking out one's neck," says Thornton.
In the last issue, under the title 'strategy matters: eye before decision,' the decisive eye dealt with long-term growth prospects in the hotel and leisure sector as well as emerging opportunities for overseas investors in Spanish real estate.
Source: Tavistock Communications