"Going global is key to finding higher returns International Property""
Concrete Analysis by Zoltan Szelyes
Investors should take a closer look at commercial property in Tokyo, Seoul and Melbourne.
Investors need to embrace an active strategy in the search for submarkets under transformation in selected cities
Commercial property is worth a look in cities where active management and the repositioning of buildings can add value.
Published: 12:00pm, 30 Jul, 2019
This article appeared in the South China Morning Post print edition as:
Going global is key to finding higher returns International Property
<Zoltan Szelyes is head of global real estate research at Credit Suisse Asset Management Global Real Estate>
SUMMARY: The prolonged low interest rate environment has created challenges for investors in deploying money in financial markets, as higher return opportunities are hard to find.
However, active real estate strategies can thrive under such circumstances and should play a more prominent role in investment portfolios. Real-estate strategies can be broken down into three categories: core, value-added and opportunistic.
Core strategies are relatively low risk, with returns mainly being generated by long-term leases. Opportunistic strategies are high-risk investments with the extensive use of leverage or the taking development risk and they have higher uncertainty on returns.
Value-added investors take the middle route. As in the opportunistic strategy, they aim to generate higher returns through stronger capital growth. Active management, such as leasing of vacant space, the optimisation of leases and repositioning buildings through refurbishments or renovations are typical characteristics of value-added strategies.
We believe value-added strategies are supported by both the macro environment and the specific trends in the real estate market. A successful investor should also adapt his or her strategies relative to the real estate cycle. While over recent years the focus of Hong Kong investors have been overwhelmingly to diversify to Europe, we believe the time is ripe for global diversification. Meanwhile three Asia-Pacific cities that we follow rank highly as a market story as well as from an improving submarkets perspective.
First Tokyo. Second Seoul.
And third Melbourne.
Driven by favourable demographics and a diverse base of industries, we project sustainable growth of office rents in the city over the next five years. From our perspective, Melbourne has the strongest prospects of any Australian city over a 10-year horizon.
An anticipated uptrend in rents should provide fertile ground for investor strategies focused around the repositioning of buildings. We believe in the benefit of global diversification. Better risk-adjusted returns can be achieved by combining different strategies in different regions than by investing in individual niches.
Melbourne offers lower risk in Commercial
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