Divergence in global property securities returns

Returns from property securities are diverging by region, due to global economic events, according to First State Investments head of property securities, Stephen Hayes.

Hayes said that earnings for US real estate investment trusts (REITs) should be around 6% in 2016, partly due to the sector being seen as a safe haven for investors in a time of uncertainty. In addition, Hayes added that rental growth, healthy occupancy and still low interest rates should support US REIT performance. In Europe, share prices should be supported by low interest rates and demand for income-producing commercial real estate investments. Hayes commented: “Valuations in some parts of the market remain stretched – careful stock selection will remain critical in the year ahead.”

Despite the risk of short-term volatility in the UK due to a possible exit from the EU, Hayes said that the fund has 11% invested in the UK. He said: “Property market fundamentals remain strong – particularly for companies exposed to the Central London market – and we believe attention will refocus on this once attention on the EU referendum fades.” Looking at Asia, Hayes said that there are early signs of weakness in the retail sector, which is exerting a downward pressure on rents. On China, he commented: “The risk associated with slowing Chinese economic growth is preventing the fund from establishing greater exposure to the region.”