In the current low-growth environment, global listed real estate securities are uniquely placed to offer investors a good source of income. We’re also seeing the growth of public real estate markets creating opportunities for investors to access attractive returns while offsetting portfolio risk.
We engage James Maydew in some Q&A to discuss why this asset class is an attractive prospect and to provide an outlook for investors.
1. What are the benefits of investing in global real estate investment trusts (GREITs)?
This asset class provides exposure to high-quality assets from around the world that require a large capital outlay and significant acquisition costs – assets which investors may not have otherwise been able to access. The fundamental attributes of this asset class – defensive yield and growth – position it to continually deliver during economic instability.
Listed real estate is a high-liquidity asset class, meaning that investors can respond to market conditions and capitalise on opportunities quickly, this is particularly relevant in a volatile market.
As well as being highly liquid, listed real estate is also relatively higher-yielding. In our current low-growth environment, yield is an important part of the total return for investors.
Investing in GREITs provides investors with a liquid proxy for direct real estate and all the added benefits of having real estate in a diversified portfolio. It also offers both regional and sector diversification, as there are low correlations, which also allows plenty of opportunity for active managers to generate alpha.
2. Where can investors find opportunities in this asset class?
The beauty of global listed real estate is it is, well… Global and liquid, allowing active managers like us the opportunity to allocate capital to different parts of the world when it is appropriate. Different sectors are exposed to differing economic drivers at various points in the cycle, with low correlations between certain sector types and global geographies always presenting opportunity.
In today’s cycle we see good opportunity in Continental Europe, supported by low interest rates and improving economic growth. We see strong opportunity in global storage, a fragmented asset class with low cap ex requirements and driving growth from ecommerce advertising and consolidation. We also like Japan, a market where land values continue to appreciate, vacancy rates fall and the central bank is explicitly supporting the sector though asset purchases.
3. Are there risks involved when investing in GREITs?
As with any investment, the opportunities presented by investing in GREITs also bring some risks.
Share market investments pose a threat to this asset class as adverse market movements could result in capital losses, particularly over the shorter term. Over the longer term, the risks are closer aligned to those you should anticipate to see from investing in direct real estate.
The usual risks when investing in property pertain to investments in this asset class also, and may impact the value of the securities held by the particular Fund. These factors include the quality of the underlying properties, geographic location and the costs and losses associated with natural disasters, but these factors should always be accounted for in your investment process.
Currency risks also pose a threat – even if a fund’s international investments are principally hedged back to Australian dollars, exchange rates, hedging and changes in the state of the Australian and world economies can affect the investment.
4. What is the short and medium-term outlook for GREITs?
This is always a challenging question because we would encourage investors to look at listed real estate over the long term to reap the benefits of the asset class and to deliver returns akin to the direct market. If you look short term you will not get these returns, but something closer to equity in terms of volatility, which should never be the investor’s intention.
Investors should be mindful of the pricing arbitrage between listed and direct in certain key global markets at this point in the cycle. Listed real estate is a lead indicator for the direct market and is indicating that the tailwinds of cap rate compression in most asset classes are mostly done, and valuation growth will be delivered from rental appreciation and occupancy gains from here.
Real estate is driven by supply and demand. Demand is currently robust and as a team we will be watching global economic data to understand if growth can to continue to muddle along throughout this heightened volatility and Fed rate cycle. On the supply side, in most key markets, supply of real estate delivered via expansionary developments is well in check. We are watching closely the relationship between market transactions, and replacement cost and any red flags of any increase in speculative development risk taking, to ensure that we are exposed to those markets and companies that are balancing the dynamic appropriately.
Source: AMP Capital
About the Author
James Maydew,
Co-Head of Global Listed Real Estate
James Maydew joined AMP Capital in 2006 and has more than 14 years’ experience in the real estate industry. Based in Sydney, he is jointly responsible for leading AMP Capital’s global listed real estate capability and investment strategy.
Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.
