All Articles

Drivers of 2015 real estate returns

Mike Keogh

Michael Keogh, Associate Director of Research & Strategy, discusses the drivers of long-term real estate growth.

According to the August 2014 Preqin Investor Interview survey, 93% of respondents wanted to increase (41%) or maintain (52%) their allocation to global real estate in the long-term. This trend has been reflected in strong global real estate investment activity to date, which remains on large, well ahead of any broad improvement in leasing activity. This reflects certain major macro-economic and geo-political headwinds. A recovery in credit conditions, attractive financing costs, and the prospect of low growth and inflation, has led to an investor preference for core, more liquid real estate markets, which are recording economic growth and are supported by good property fundamentals. This trend is unsurprising: not only does Preqin report that the economic environment is the overwhelming key issue that will influence future allocations, but that we are also poised to move from a yield to rental-driven performance in 2015.

With that in mind, the prospect of divergent Central Bank action will be a key determinant in capital flows, transactional volumes and pricing in 2015. UK and US policy makers are likely to move well-ahead of both the ECB and Japan, with employment and growth becoming more resilient. However, this will not necessarily mean an associated softening in real estate pricing. At this stage in the cycle, with only the prospect of very modest, well-documented changes in borrowing rates for the US and UK, it is likely that only a crisis in occupier markets would undermine valuations. This is reflected in those markets with prospects of interest rate rises; rental growth should also materialise given stronger growth, supporting market returns.

Drivers of 2015 real estate returns 
Source: Preqin Investor Interviews, August 2014


This article is intended solely for the use of professionals and is not for general public distribution.

Any assumptions made or opinions expressed are as of the dates specified or if none at the document date and may change as subsequent conditions vary. In particular, the document has been prepared by reference to current tax and legal considerations that may alter in the future. The document may contain "forward-looking" information or estimates that are not purely historical in nature.  Such information may include, among other things, illustrative projections and forecasts. There is no guarantee that any projections or forecasts made will come to pass.  International investing involves risks, including risks related to foreign currency, limited liquidity particularly where the underlying asset comprises real estate, less government regulation in some jurisdictions, and the possibility of substantial volatility due to adverse political, economic or other developments. Past performance is no guarantee of future performance. The value of investments and the income from them may go down as well as up and are not guaranteed.  Rates of exchange may cause the value of investments to go up or down.  Any favourable tax treatment is subject to government legislation and as such may not be maintained. The valuation of property is generally a matter of valuer’s opinion rather than fact. The amount raised when a property is sold may be less than the valuation. Nothing in this document is intended or should be construed as advice. The document is not a recommendation to sell or purchase any investment.  It does not form part of any contract for the sale or purchase of any investment. TIAA Henderson Real Estate (TH Real Estate) is a name under which Henderson Real Estate Asset Management Limited provides investment products and services. Issued by Henderson Real Estate Asset Management Limited (reg. no. 2137726), (incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3BN) which is authorised and regulated by the Financial Conduct Authority to provide investment products and services. Telephone calls may be recorded and monitored.

Michael Keogh

Mike Keogh

Director of Research

Mike's biography