It’s that time of year, again. The leaves are starting to fall. It’s getting darker in the evening. It’s coming up to winter and the new year beckons.
It’s at this time of year that the editors of IREI’s publications start preparing their editorial programs for the next year. I like to give readers a bit of everything. Real estate investment people have wide interests. Everyone likes a good deal in their backyard, but we also have to remember those whose passion lies elsewhere. I divide stories into three types — geographic, sector and issue.
Geographic — that’s easy. Pick some countries in Europe, and relate the treatment to topical events. As an example, Russia — where does the wounded bear go from here? What effect will the economic sanctions placed on Russia and Russians by the United States and the European Union for perceived (make that actual) non-cooperation on the crisis in eastern Ukraine have on Russia’s real estate markets and on the country’s aspirations?
Scotland? Well, let’s wait for the people of Scotland to decide next week if they want to be independent, before we start thinking about what all that might mean for Scotland and rUK. (That’s the term for the “rest of the United Kingdom”; the “r” could be “residual,” “remnants” or “remains,” but “rest” will do as a descriptor for England, Wales and Northern Ireland. Get used to it. It’s looking neck and neck, and a decision in favor of independence is, indeed, possible. We are in margin-of-error territory. Go Scotland, in both senses.)
Sector — that’s not too hard, either; there’s only really five to choose from. An example of a trend story is retail, where you can repent at leisure. Office markets, faced with below-trend economic growth prospects and limited rental growth, have lost some appeal to real estate investors. The retail sector, however, continues to impress — people have to eat and seemingly have not reduced their propensity to spend. What does this mean for retail and retailers, and how will the spoils be divided between the High Street and out-of-town shopping centers and retail parks? How is the increasing demand for leisure alongside retail being met? Who drives change in retail — owners of retail centers, retailers or consumers?
Issue — that’s much harder. There are so many issues in real estate investment. And they interrelate to an astonishing degree. Risk? Always a good one. Leverage? Another good one. Value-add and opportunistic investments? Always worth a look, although not everyone is convinced. All three put together? Now there’s a story. Are investors being paid for the risks they are taking, whether in core, value-add or opportunistic strategies? What are the right return targets?
REITs? If you want exposure to real estate, isn’t it just easier to place an order for listed property securities? You can buy and sell as you will. Why go to the trouble of buying a building or units in an open-end or closed-end property fund, with all the liquidity and asset management issues that come with those routes? Can the addition of REITs give a total portfolio a better risk-adjusted return?
Asset allocation is always a good issue. Your consultant suggests, almost seriously, that your global real estate exposure should be based on North America, Asia Pacific, London, rest of Europe including regional UK, and emerging markets. Is London becoming a geographic sector of its own, not just against the rest of the United Kingdom but also against the rest of Europe? For me, that comes under issue, not geographic.
We mustn’t forget Europe as a whole — again, as an issue, not geographic. Real estate — rising to the rate? The Bank of England is expected to be the first of the G8 central banks to start increasing interest rates, “soon” and in incremental steps. Meanwhile, the European Central Bank has reduced deposit rates to negative territory. Deflation is seen as a real risk.
How will the different macroeconomic scenarios across Europe play out? What will be the impact of higher interest rates on bond yields, property prices and investor asset allocation? What are the risks? The real risks? Should we be concerned? How can real estate investors invest now in such a way that the negative consequences from rising interest rates will be limited as much as possible?
There you have it. How an editorial program is put together. There is method in the madness. And if you don’t see IREI’s publications, perhaps you should.
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Richard Fleming is editor of The Institutional Real Estate Letter – Europe.
