Americas tipped again as best location

The Americas will provide the highest unleveraged total returns out of anywhere in the world in between 2011 and 2014.

In the second study in the space of three weeks suggesting the region is a global hot spot, Dutch-based group ING Real Estate Investment Management (ING REIM) said commercial real estate investment markets in the Americas would provide the highest unleveraged total returns.

It said the steep fall in values during the crisis “may” provide opportunities in distressed sales and lead to mispriced assets emerging in this period.

The prediction is made in ING ‘s Third Quarter Global Vision research report and comes after property services firm DTZ made similar claims late last month that the US was the world’s hottest market.

Timothy Bellman, ING REIM’s global head of research and strategy, said real estate markets worldwide were likely to “prove attractive” to many types of investor in the 2011-2014 period especially due to the income return.

“While there will be variations in speed, scale and timing of the recovery…the Americas will probably offer the best chances for the highest unleveraged returns,” he added.

The Global Vision research pointed at forward indicators in the US real estate market implying transaction yields were declining and concluded that this would  feed through into the benchmark NCREIF and IPD indices in the near future.

The Moody’s repeat sales index suggests transaction prices have bounced 8.6 percent since the low point in mid-2009, albeit still around 30 percent lower than in the mid-2007 peak. 

Furthermore, ING said according to the MIT Center real estate transaction index, prices for commercial properties sold by major institutional investors increased by 17.3 percent in the second quarter of 2010, though based on a low level of transactions. 

The survey concludes: “A strong rebound in values of prime properties appears to be being triggered by lower cap rates driven down by strong investor demand for a limited supply of suitable product.  Resource rich Brazil and Canada also have relatively positive economic prospects in the Americas.”

While Europe’s short term economic prospects appear relatively weak, ING REIM said it believed real estate returns were likely to remain “broadly stable” and “attractive” with a more positive outlook for core countries such as Germany, France, the Netherlands and the Nordics. Total returns in the UK in 2011 are expected to reflect a “modest pull-back in values” of prime properties, but thereafter a sustainable recovery should deliver “buoyant investment returns,” it said. 

Addingto the feel-good factor, it said Asia Pacific had recovered strongly and that returns would be “robust” in most markets, particularly in the retail and industrial sectors in Asia outside Japan, as well as Australia.

Bellman concluded: “Generally we believe that global real estate markets remain on a path to recovery. This is despite an expected prolonged period of weak and choppy economic growth as the world grapples with the scale of deleveraging necessary to restore the health and balance of its financial and economic systems.”