LONDON, Dec. 15, 2016 /PRNewswire/ -- The UK will remain
a key investment market for domestic and global investors in 2017
but it is important to be very selective with opportunities,
according to LaSalle Investment Management's Investment Strategy
Annual (ISA) 2017 edition.
Confidence in the UK occupier market held up much better than
most expected immediately after the Brexit Referendum, and prime
assets have traded at little or no discount to their pre-referendum
valuations, the ISA finds. But investors should be prepared to
encounter stretches of elevated capital market volatility in
2017-2018.
LaSalle remains a core income-focussed buyer in the market and
will remain so for the year ahead, but this will not be at any
price, and must be under certain conditions. Depending on the
opportunity, the business also remains committed to taking leasing
risk on assets in favourable locations in the UK, depending on
market opportunities and taking into account the potential Brexit
impact on tenants.
Elsewhere in Europe, the ISA
anticipates that occupiers and investors will continue with their
pre-Brexit business plans based on modest growth in Germany and France, and stronger economic performance in
Spain, Poland, Sweden, and to a lesser extent, the Netherlands. Furthermore, the report finds
that competition for core income-producing real estate is expected
to remain intense.
Mahdi Mokrane, Head of Research and Strategy for Europe at LaSalle, said: "We believe that
the UK will remain one of the world's most transparent, liquid and
supportive destinations for investors in spite of the current
uncertainty around the country's future relationship with the EU.
Looking ahead, given the prospect of a hard Brexit, fewer of the
larger, longer-term occupier decisions are likely to be made until
much of the volatility has dissipated."
In the UK, LaSalle will remain focussed on the following
investment themes that are expected to outperform over the long
term:
- Long-leased retail that offer accessible, flexible and
affordable solutions to ever-demanding retailers offer a defensive
investment profile.
- The private rented residential sector (PRS), which will be one
of the clear winners in the years ahead given the chronic
undersupply of housing in many parts of the UK.
- The London office market may
offer short term investors Brexit-led re-priced investment
opportunities whilst continuing to generate longer term investment
options in attractive emerging locations.
- In a low-interest rate environment, mezzanine lending is one of
our best income-rich strategies as a tighter regulatory framework
is also forcing traditional lenders into a more conservative and
risk-averse stance.
Across Continental Europe, future elections could become
socially disruptive and cause significant capital market
volatility. The short-term market impact in 2017 is likely to vary
in magnitude depending on the global implications of the political
risk. In these countries, the ISA recommendations include the
following themes:
- Core office investments in cities such as Paris, Amsterdam, Frankfurt and Munich should outperform average EU-wide
returns.
- Dominant shopping destinations (particularly in France), as well as high street retail pitches
(in Sweden and Germany) in thriving commuter towns.
- Urban logistics will continue to offer relatively high yields
whilst underlying land values are expected to increase as
populations and the urban fabric expands.
- Residential developments in the
Netherlands and Germany are
favoured as a develop-to-hold strategy whilst avoiding any planning
risk.
At a global level, this year's ISA recommends that, over the
long term, investors should look to balance ultiple risk-return
strategies in a broad-based international real estate investment
portfolio which can run in parallel with a larger, domestic
programme. It also recommends reducing portfolios of non-strategic
assets, reducing leverage, and being aware of liquidity needs if
and when credit tightens. However, among the shorter-term
opportunities, investors should consider taking leasing risk where
markets are growing, pursuing development in supply-constrained
markets where demand is strong, and bidding on strategic long-hold
assets which are most likely to be able to withstand a
downturn.
Jacques Gordon, Global Head of
Research and Strategy at LaSalle, said: "As we look to the year
ahead, across the G-7 a shift to more expansionary fiscal policy
and away from reliance on monetary policy, along with the potential
for protectionist trade policies, could accelerate the end of the
"triple low" regime (economic growth, inflation, and interest
rate). These factors are all likely to be at work in the US economy
during the next three years. These same policies could possibly
push the UK to higher rates.
"Investing solely in domestic markets greatly reduces the number
of potentially rewarding opportunities to take advantage of in the
next two years. The winds of change will be blowing through the
world economy in 2017. Headwinds and tailwinds can both be
expected, along with market turbulence. "
About LaSalle Investment Management
LaSalle Investment
Management is one of the world's leading real estate investment
managers with approximately $60
billion of private and public equity and private debt
investments under management (as of Q3 2016). LaSalle's diverse
client base includes public and private pension funds, insurance
companies, governments, corporations, endowments and private
individuals from across the globe. LaSalle sponsors a complete
range of investment vehicles including separate accounts, open- and
closed-end funds, public securities and entity-level investments.
LaSalle is a wholly-owned, operationally independent
subsidiary of Jones Lang LaSalle Inc. (NYSE: JLL), one of the
world's largest real estate companies. For more information please
visit www.lasalle.com
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