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PERE Amsterdam: RE returns still attracting investors

Despite the geopolitical upheaval this year, the mood among investors is clearly still positive with regard to real estate. However, with predictions of economic uncertainty in the months and years ahead, a hint of nervousness was palpable on day two of the PERE Global Investors Forum 2016.

Global investors are still primarily committed to real estate because of the risk-adjusted returns available when compared to fixed-income assets, an audience of delegates at the PERE Global Investors Forum 2016 heard today.

This morning’s panel session, titled ‘Investor confidence in real estate’, examined what attracts investors to the real estate asset class. The session began with a poll asking what the primary reason was for investing in real estate. Top of the pile was ‘risk-adjusted returns’ with 49 percent of the vote; in second was ‘income’ with 35 percent; next was ‘diversification’ with 14 percent; and finally ‘none of the above’ with 2 percent.

The results, the panel concluded, suggested there had been a shift from the traditional rationale for investing in real estate, namely diversification and returns, to desiring income and returns.

Sitting on the panel were Geert de Nekker, director of international real estate at Dutch real estate investment manager Syntrus Achmea Real Estate; Harm-Zwier Medendorp, manager alternative investments at Dutch pension fund manager TKP Investments; Mads Rude, senior partner at Danish real estate investor Sparinvest; and Stephen Tross, managing director international investments, at Dutch real estate investment manager Bouwinvest.

“Real estate was in our portfolio for diversification reasons,” said Medendorp. “But times have changed, investors want to know more about it. There is a lot of interest in real estate assets at the moment.”

“However, more and more it’s about the risk adjusted returns and income on offer compared to fixed assets,” added Medendorp.

Bouwinvest’s Tross said his firm invests across all asset classes and, following a recent performance review, real estate was comfortably the highest performing asset class.
Dutch pension funds, according to de Nekker, were also showing a lot of interest in real estate, but the complicated regulatory system in the Netherlands was hampering their ability to access the market.

“It is difficult for these funds to switch from bonds to real estate. They are not allowed more risk in their portfolio because of Dutch laws, so this can be a long process,” de Nekker said.

Whereas Danish pension funds are under-allocated to real estate, said Rude, and are looking to commit because they see the asset class as an “attractive place to be”.

“In our experience, investor confidence in real estate is good. Danish pension funds are roughly 15 percent to 20 percent allocated but are looking to slightly increase.”

The generally positive mood was dampened, however, by Medendorp and de Nekker who said their main concerns were economic. “There is still a big risk of a value drop in the event of a downturn. You need a buffer in case this happens. What is the best way to do this? Should we stick to core opportunities and buy expensive assets or do we build to core? Only time will tell,” Medendorp said.

“What is going to happen if there is an external shock? Will investors withdraw their money from real estate? Investors generally know less about the real estate world but they do follow what is happening in the global financial world.” added de Nekker.

The PERE Global Investors Forum 2016 is being held at the Amsterdam Hilton and runs from October 27 to October 28.