Europe鈥檚 commercial real estate sector stands to benefit from increased allocations from pension funds. That was the main message from this year鈥檚 annual EPRA conference, held in London this week.
Speaking on a 鈥楽ecure Future鈥� panel, Create Research chief executive Amin Rajan said with the 鈥渄ays of double-digit returns for pension funds gone鈥�, he expected an increase in their allocations to real estate to around 12% in the near future.
Rajan said: 鈥淎sset allocations are changing.鈥�
REITs 鈥� very much the talk of the corridors at this year鈥檚 conference 鈥� were 鈥漵eeing rising allocations鈥�, he told delegates, who had how more institutional capital was boosting the sector. 鈥淭he liquidity they offer is the main attraction.鈥�
The vehicle 鈥� which has had success in both Ireland and Spain this year 鈥� also offers smaller pension funds without in-house expertise an entry point to the commercial real estate sector, Rajan said.
鈥淥utsourcing is happening and that serves the need of small pension funds,鈥� he said. 鈥淩eal estate is generally seen as a good asset class with regular cashflow, yield and protection against inflation.鈥�
NAPF chief executive Joanne Segars, who joined Rajan on the panel, told delegates that pension funds were now more diversified but still had core needs. Real assets, including infrastructure, offer pension funds liability-matching returns she said. 鈥淭hat鈥檚 what they鈥檙e all focused on,鈥� Segars said.
There is, she added, no 鈥渂lanket approach鈥� to commercial real estate asset classes. 鈥淚t鈥檚 more sophisticated than that 鈥� the concept of traditional real estate asset classes is breaking down.鈥�
Europe鈥檚 鈧�145bn listed commercial real estate sector 鈥� tipped to take 18% of the global index by the end of next year 鈥� should be able to attract Asian capital, said panel moderator and Internos chairman, Jos Short.
Japan鈥檚 moves towards real estate were also on delegates鈥� radars, with the expectation that an allocation to the sector by the country鈥檚 state pension fund could eclipse that of Norway鈥檚 oil fund.
Although there was plenty of room for optimism at this year鈥檚 conference, caution was urged by Great Portland Estates chief executive, Toby Courtauld, with leverage levels a potential risk.
鈥淭his is still a property cycle,鈥� Courtauld said, adding that gearing could still pose a threat to the listed sector.
Other potential issues facing the sector 鈥� such a technology 鈥� . An increase in the amount of IPOs 鈥� most recently between French REIT Kl茅pierre and Dutch retail specialist Corio 鈥� was also raised.
Speaking on EPRA鈥檚 investor sentiment panel, APG global real estate managing director Patrick Kanters said the Corio merger was a 鈥渘o-brainer鈥�, with the opportunity to combine expertise and skills in retail an obvious positive.
Courtauld remained positive on prospects for the property sector, saying that there was still a 鈥漴ental story鈥� to be told following recent yield compression. The panel predicted returns to range from 6% to 12% in the coming year.
