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#Real Estate — 08.10.2015

A somewhat better month for REITs worldwide, with the exception of Asia

Pol Robert Tansens

Every month our Head of Real Estate Strategy, Pol Tansens, brings you the most up-to-date market information on real estate securities

The downward trend of previous months has been reversed except in Asia

September returns were better in Europe, with the U.K. climbing by 1.4%, ahead of the +0.6% for Continental Europe. On an annual basis, the old continent performed very well in the year to 30 September, with startling returns of over 20%. Not bad for a continent that has gone through a serious crisis.

Annual returns carried by North American REITs* are in the middle between Asia and Europe, signalling the ongoing debate on prospective interest rates in the U.S.

Asian REITs however are still in the doldrums, posting fresh losses of 1.9% for Asia ex-Japan and even 2.7% for the country of the rising sun.

Nevertheless, the current challenging environment has not spared REITs

The environment remains challenging for REITs (and direct property in general). Worries about Greece (although fading), China, falling energy prices that caused carnage in the energy industry, and uncertainty over the future path of interest rates have hurt stocks this year. Unfortunately, REITs were hurt too: some of them have lost value in the 12 months to end-September 2015.

Key market trends

We think investors will continue to focus on "core" REITs, which are invested in secured properties (with the U.K. - and in particular London - being a good example). Core REITs will not prevent investors from undergoing overall stock market woes (volatility, sensitivity to higher real interest rates etc.), yet the real estate risk itself should be more neutralized. This is what long-term investors are aiming for today and, in doing so, they are being gratified with a higher cash yield."

*Real estate securities provide investors with a liquid way to access property assets without having to buy property directly. A real estate security is a share of a company or trust, privately held or listed, that manages a portfolio of income-producing properties, such as shopping malls, office buildings, apartments...