Aviva Investors raises five-year total return forecast for European real estate to 9% per annum.
* German industrial and Swedish retail most attractive markets on risk-adjusted basis
* High spread between European prime property and bond yields to be maintained
Aviva Investors has revised upwards its five-year annual total return forecast for European real estate to 9% gross of fees. Chris Urwin, global research manager at Aviva Investors, comments on the outlook for the region and the countries best equipped to handle another dip in growth:
“Following strong investment into prime European assets, we raised our forecast for European Real Estate annual returns between 2015 and 2019 to 9%, from 8.7% previously. These projected returns, however, are front-loaded to the first half of the forecast period.
German industrial and Swedish retail most attractive markets on risk-adjusted basis:
“Our latest macro risk-rating shows that Germany, Sweden and Poland have the strongest macroeconomic fundamentals and are best positioned to handle any future potential dips in growth.
“Unsurprisingly, the macro-economic risk is more elevated in the southern European economies of Spain, Portugal, Italy and Greece. However, there are pockets of value to be found. The Spanish and Dutch office markets look relatively attractive on a risk-adjusted basis, and as some peripheral markets are seeing more rapid economic growth than other European countries, we expect them to outperform their peers over our five-year forecast period.
“However, caution is required as these countries rank quite poorly when macroeconomic risks are considered. An investor with a downbeat view of European prospects may prefer Swedish industrial and retail sectors along with German retail assets.”
High spread between European prime property and bond yields to be maintained:
“Although we expect Europe’s fragile recovery to continue, it’s subject to a number of risks including the Greek debt crisis and a China-led slowdown in global growth. Taken as a whole, Europe is poorly positioned to deal with another economic downturn.
“European government bond yields have increased since the start of the year but they remain at historic lows and are not expected to start rising for at least two years. This means the current high spread between European prime property and bond yields will be maintained, underpinning investor demand for some time to come.”
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Aviva Investors is the global asset management business of Aviva plc. The business delivers investment management solutions, services and client-driven performance to clients worldwide. Aviva Investors operates in 15 countries in Asia Pacific, Europe, North America and the United Kingdom with assets under management of £247 billion as at 30 June 2015.
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