Commercial property shares
will produce “outsize returns” when global economic recovery
gathers pace, predicts Frédéric Tempel, head of European property
securities at Axa Framlington, Axa Investment Managers’ property
portfolio management arm.
Shrugging off economic
uncertainty, Tempel stressed that it was not serious enough to
alter the positive outlook for commercial property.
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“The global economy remains
expansionary and commercial property fundamentals are generally
improving, as steady demand for space continues to outstrip
historically low supply,” said Tempel.
He added that in an
environment of low interest rates, income yield offered by property
“remains compelling”. Property equity, he said, offers dividend
yields ranging from 3% to 4%.
Property shares are not
immune to prevailing negative investment sentiment, Tempel
conceded. But, he emphasised the property sector is in far better
financial shape than at the onset of the financial crisis some
three years ago.
He added that a general
scarcity of prime commercial property is also supportive for the
sector.
Supply scarcity, he noted,
was sparked by the evaporation of funding for new developments
during the financial crisis. This resulted in construction in
developed markets falling to historically low levels.
As the global economy
recovers, Tempel stressed that vacant space will be quickly
absorbed, enabling landlords to increase rents. This in turn will
boost income from properties and property values, a development
that will be particularly positive for quoted property companies
which hold quality, prime assets in their portfolios.
Taking a more cautious
stance, Allianz Real Estate CEO Olivier Piani warned that European
commercial property, which is now seeing strong demand from
investors, will not escape the crisis in the euro region. In prime
target markets such as Germany, a “price bubble” could be forming,
he believed.
“One tricky factor is that
changes to the broader economy only start affecting property
investments at a much later date,” said Piani.
“This means that the [real estate] sector might make
mistakes today which
only become apparent the day after tomorrow.”
