CBRE highlights the case for investing in commercial property
Worries about the future of the eurozone have escalated again this week, with investors taking to safe havens as the situation in Spain and Italy deteriorates and the crisis in Greece continues. Against this backdrop, CBRE has argued in a new paper that the case for investing in commercial property is even stronger.
“Time to Overweight Real Estate – The Case For Property in 2012” looks at the trends in prices and investment activity in commercial property against the background of the eurozone crisis and GDP growth downgrades. It says both prices and investment activity have held up “remarkably well” and notes that institutional allocations to property have continued to increase.
“One of the major benefits of real estate is that it offers a positive investment case, not just against the likely economic outlook, but also against a number of other scenarios, whether the eurozone crisis continues with no clear resolution, in an inflationary environment, or in a full-blown recovery,” says Michael Haddock, senior director of EMEA research & consulting at CBRE.
“While other asset classes might produce better returns under specific outcomes, real estate performs under multiple scenarios, making a strong case for investors to overweight property at this time.”
CBRE looks at the Lehman Brothers collapse as a case in point. It is unlikely that bondholders or shareholders in Lehman will get much back from the winding-up process, but the former owners of Lehman’s headquarters building in the UK fared better. The administrator continued to pay most of the rent while Lehman’s European operations were transferred to Nomura, while sub-tenants in the building provided additional security of income, it notes. The building was subsequently sold to JP Morgan for £495m. “Indeed, over the last five years, investors would have been better off owning the buildings occupied by banks rather than shares in the banks themselves,” CBRE adds.
“At times of high market uncertainty and volatility, this downside protection is a quality that is highly valued by investors,” the firm says, but it does caution that the level of this protection varies from building to building – the newest and best-located properties clearly offer the best protection and this is reflected in investor behaviour, which is strongly favouring such assets.
