As the UK faces Brexit-induced headwinds, investors should diversify and look to global real estate markets where economic growth is accelerating.
That is according to Cohen & Steers’ Rogier Quirijns, who runs several funds at the firm including the Cohen & Steers Sicav European Real Estate Securities fund.
‘We still see bright spots, especially in more defensive sectors such as self-storage, student housing, and healthcare landlords, which should be more resilient in the event of a downturn,’ he told Citywire Selector.
AA-rated Quirijns currently has 27% allocated to Germany, with 50% of the top ten holdings of the fund being businesses registered in the country.
‘We hold a constructive view of continental Europe's property markets. In contrast to the UK, economic growth in the region is expected to remain healthy, which should bolster real estate demand.
‘Germany is enjoying strong economic, population and job growth and we particularly favour residential and office properties, predominantly in major cities like Berlin, where demand far exceeds supply. We also like dominant shopping centres in major cities that stand to benefit from improved retail spending.’
Elsewhere, Quirijns also favours Spain (6%) with economic growth of more than 3% as well as other European cities such as Paris. However, Quirijns said there is also room for positive earnings surprises in the US.
‘With US REITs, we anticipate the demand for commercial real estate will continue to outstrip new supply across most sectors, driving rents and cash flow.
‘Our US allocation is positioned in favour of sectors that we believe stand to benefit most from faster economic growth, low unemployment and rising incomes, such as offices located in central business districts in certain markets. We also favour residential rental sectors, including apartments, single family homes, manufactured homes and student housing.’
Plenty of alternatives
Quirijns said there are plenty of options for investors looking to position in the property market post-Brexit, and also highlighted Asia as a region with attractive valuations.
‘In Japan, we believe developers continue to trade at attractive valuations. The dividend growth prospects for some leading REITs appear to be improving, backed by rent increases and lower interest costs.
‘Residential demand in Hong Kong has continued unabated, despite the government's announcement of more measures for cooling the market, which has witnessed strong momentum over the past year.’
With pressures building in the UK, Quirijns said funds that invest in European global property securities have a distinct advantage over UK focused direct funds.
‘We believe the case for European and global property securities has never been stronger for investors, especially with Brexit looming,’ he added.
The Cohen & Steers SICAV European Real Estate Securities fund returned 43.87% in euro terms, over the three years to the end of June 2017. This compares with a 30.70% rise by its Citywire-assigned benchmark, the FTSE EPRA/NAREIT Developed Europe TR over the same time period.