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Past performance is not necessarily a guide to future performance

Stefan Wundrak

Stefan Wundrak, Head of European Research, discusses the polarisation between prime and "average" assets in the absence of stronger economic growth.

Since the last property peak in 2007, owners of prime assets have enjoyed far superior returns over the owners of merely average ones. In lean times, occupiers of offices and retail units alike flock to the best assets, in an effort to focus and consolidate on core business. As a result, Central Business Districts (CBDs) have beaten the fringe, top shopping centres have powered ahead of the field and most countries’ leading cities have outshone their smaller neighbours. This polarisation is likely to continue in the absence of stronger economic growth.

However, polarisation may have already over expanded the gap between the top and the vast majority of the mediocre. Europe’s top 30 high streets are a prime example: Retailers competing for the best shops, and investors chasing that very stock, have driven capital values to levels way above their previous peaks. In contrast, average commercial property has had no recovery in values to speak of. Investors and occupiers alike seem still to be geared for a recession. In another downturn, prime real estate, again, would be the best protected and having paid top dollar (in rent and/or yield) for that, would make sense.

But an optimist regarding the economy should get worried with the lofty heights of prime asset values, as these will be most vulnerable to rising interest rates in a recovering economy. Even if you believe in a shallow bond curve, investors should not assume that stellar growth at the top will continue; afterall, how many more tourists can you cramp into Oxford Street on a given Saturday anyway?

Capital value movements in Europe
Source: CBRE Valuations Monitor, PMA, TIAA Henderson Real Estate Research, Q3 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 the 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.


Stefan Wundrak

Stefan Wundrak

Head of European Research

Stefan's biography