Aberdeen: diversification into real estate an ‘attractive proposition’

Aberdeen Asset Management, the European investment management firm, sounded a positive note for property today, singling out the asset class as an attractive one for diversification.

In its Outlook 2010 briefing, the firm, which principally invests in equities, fixed income and property, said that the strong performance of equities coupled with general economic uncertainty pointed towards real estate being a good diversification strategy.

Mike Turner, head of global strategy and asset allocation, said: “As 2009 draws to a close, it seems reasonable given the strength of this year’s market rallies, and continued uncertainty surrounding the economic environment to be somewhat more cautious in our outlook for 2010. A degree of diversification into real estate markets seems therefore to be an attractive proposition, especially in the UK.”

Aberdeen believes 2010 will be a “challenging” year for investors generally because the economic recovery remains “fragile”. Although the US housing market is recovering slowly, unemployment is rising and savings rates remain too low. Furthermore, western government, particularly the US and the UK, need credible plans to balance their budgets in the medium term.

For real estate, the company anticipates “stability” in capital values, particularly in the UK. However, it added it did not predict an immediate turnaround in rental growth. Aberdeen said: “Markets should follow the usual pattern of a recovery in capital values leading rental growth by some margin.”

Aberdeen was joined today by another large financial institution delivering a 2010 outlook statement.

Fidelity International said western Europe will contrast sharply with central and eastern Europe as well as southern parts.

Neil Cable, head of European real estate at Fidelity, said: “At a macro level, 2010 will be a kinder year for investors in European real estate, with values stabilising across much of northern and western Europe, and even rising for prime assets in the core markets of the UK, France and Germany. However, this first phase of the new property cycle will see the emergence of a multi-speed market. The upturn in investment activity across the major western European cities will contrast sharply with weak demand for secondary assets and locations, especially those in CEE and southern Europe.”