The multi-speed global economic recovery and fast-moving capital markets will create a demanding environment for real estate investors in 2011, according to LaSalle Investment Management ('LaSalle'), which today released the 17th edition of its Investment Strategy Annual, a comprehensive survey of, and outlook for, the global real estate markets in 2011.
Looking back at 2010, a number of trends were evident. Real estate pricing recovered rapidly for 'ultra' core properties, deal flow picked up across the three regions and most importantly real estate fundamentals for investors improved - modestly in Europe and North America but impressively in Australia, Hong Kong, Singapore, and China.
But as we look forward to 2011, LaSalle believes that property investors need to get prepared for the challenging realities of a multi-speed global recovery. With continuing aftershocks of the global financial crisis still occurring, very different strategies need to be used depending on which country you are investing in. For example in Asia Pacific, development and leasing will provide some of the best investment opportunities, while edge-of-core properties will be attractive in the UK, France and the United States. Investors should look to take advantage of financial distress in Japan, Mexico, the US, the UK and Germany.
Commenting on the report, Jacques Gordon, Global Strategist at LaSalle Investment Management said: "Investment performance in the rapidly growing countries will be volatile, due to the waves of liquidity that wash over these less mature markets. Growth strategies that take advantage of rapid urbanization and a burgeoning middle class will be most successful. In the low-growth countries, investment performance will get a boost from low interest rates and a rising flow of debt and equity capital, despite the weak recovery".
The extreme difficulty of getting macro calls exactly right reminds us of the importance of taking a balanced, disciplined and portfolio-wide approach to property investing.
Report co-author Robin Goodchild, LaSalle Investment Management's Head of European Research and Strategy continues: "Portfolio managers should anticipate taking a more aggressive stance toward leasing, re-financing, and selling in 2011. As deal flow picks up, investors will be able to re-position portfolios through more active management for the first time in several years".
Although each country will offer up a different mix of opportunities, LaSalle believes that investors should consider a number of global themes unfolding in the year ahead:
· Banks will prove to be a greater and greater source of deal flow
· Exit strategies for core real estate will be highly executable
· Investors will have to broaden their targets beyond long-leased prime properties in world-city markets if they are to achieve required returns.
· Mezzanine debt will still be expensive and scarce; yet demand will rise.
LaSalle also believes that investors should prepare for another year of surprises. Here are some they are tracking:
· Global imbalances and currency wars
· Government taxation of real estate
· Rise of Chinese institutional investors
· Entity-level distress
· Re-starting stalled development.
In the report LaSalle highlights structural shifts in play in the world of real estate. One such trend is energy efficiency and sustainability -- an issue that has been building for some time but which according to LaSalle's research is now ignored at investors' peril.
Bill Maher, Director of North American investment strategy says: "Successful real estate investing today requires anticipation of factors that influence future, not just current, cash flows. Our research shows that investors in Europe place the most importance on this issue when choosing managers. While US pension funds rarely regard the issue as crucial we expect this outlook to change as evidence accumulates".
The multi-speed economic recovery will produce a long, slow return to equilibrium in the E