Research & Strategy at LaSalle is not just academic analysis. All of the team’s output is designed to benefit our clients directly. Regular back-testing has shown that LaSalle’s property market tracking system and recommendations for sector weights continually generate above-benchmark results.
The team’s thought leadership is communicated to clients through regular market updates and topical white papers. Research & Strategy publications have earned a well-deserved reputation throughout the industry for addressing key issues faced by investors. Recent examples include international real estate transparency, infrastructure investing, sustainability, and credit market turmoil.
Investment Strategy Annual
The 16th edition of the Investment Strategy Annual notes that the early stages of restored investor confidence have begun. In 2010, LaSalle expects to see a further re-alignment in risk-return expectations. Deal flow will increase modestly as sellers gradually come out of denial. Buyers will be able to price a modest degree of risk again. Investors should seek an appropriate balance between: 1) total risk aversion, which is already leading to a surplus of capital targeting a handful of ultra-safe deals and 2) inappropriate risk tolerance in a period of economic uncertainty.
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Investors should be cautiously optimistic about portfolio performance in 2010. As a late cycle participant in the general economic recovery, real estate will behave differently from other asset classes. The income streams from leased buildings weathered the global recession in remarkably good shape. However, as leases mature in generally weak markets, net operating income will be under downward pressure in many countries for several years to come. At the same time, in terms of stimulus packages and bail outs, commercial property has been treated quite differently from residential real estate, banking and other industry sectors. And private equity real estate prices have not yet recovered as robustly as stocks or bonds. All these differences mean that real estate’s diversifying power in a portfolio will be restored. |
In terms of the major risks to commercial property, we identify two significant areas. First, fundamentals will remain very weak in most European and North American markets and some Asian markets. Second, real estate capital markets could be quite volatile in the years ahead. The unintended consequences of monetary and fiscal stimulus policies could lead to too much money flowing back into property ahead of a solid recovery in fundamentals. This excess liquidity risk is already building in China and, to a lesser extent, the UK. To ameliorate this risk, investors should maintain a strict discipline that focuses on achieving a required return with realistic underwriting.
The Investment Strategy Annual is only available to clients, prospective clients and LaSalle employees via our password-protected Investment and Strategy Research website.
