Rapid rise in property values cause for worry-fund

Published 15th Aug 2011

A rebound in commercial property values has been egged on by a "lack of caution," with investors ignoring the global economic revival's multi-speed nature, making good value deals harder to find, LaSalle Investment Management said.

LaSalle, manager of over 45 billion pounds in global property assets, said in an update to its Investment Strategy Annual report that both low-growth and growth markets were pricing in several strong years of continued growth.

"The relative lack of caution in the real estate capital markets is a concern," the fund manager's global strategist, Jacques Gordon, said in a statement on Monday.

"The re-emergence of a competitive credit market, so quickly after the bursting of the credit bubble, is also astonishing."

LaSalle said it was not predicting the end of any pricing bubble of further falls in market value, but noted it was harder to source good value deals.

Global property investors have piled back into the sector in 2011 in search of assets to hedge against market volatility, pouring cash into emerging Asian markets and core U.S. and European cities, such as New York and London.

LaSalle said it did see some justification among lenders and investors that property income streams were now at, or just past, trough levels and were again climbing, even in the low-growth countries.

In growth markets, rents and cash flows had been moving upwards rapidly for 12-24 months, depending on the specific property type and market.

Such a capital-rich environment provided more opportunities to profit and recapitalise assets, Gordon said, with good value to be found in the less-noticed near-core, value-add and financial distressed sectors.

He said the next biggest risk to commercial property performance was in mistiming changes to global interest rates, which are at record lows, and advised investors to "borrow long, lease short and index anything that isn't tied down."

LaSalle also noted themes surrounding regional markets. In Asia, citing Australia's Sydney and Melbourne housing markets as attractive, and pointed to potential office relocation deals in Japan as the economy recovers from the earthquake.

China's eastern property markets faced the short-term risk of policy changes, while its central and secondary coastal markets remained attractive, the fund manager said.

In Europe, LaSalle said Germany, France, the UK and the Nordics offered the best protection from the financial turmoil surrounding peripheral Europe, while Poland was a rising economy with a maturing property market.

It said U.S. real estate fundamentals were still gaining momentum, after a two-year stall, with coastal office markets and the hotel sectors showing signs of rapid improvement.

Source: ' Reuters '

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