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Mike Keogh

INREV Investment Intentions Survey 2014: a Research response

Michael Keogh (Senior Investment and Economic Analyst) provides a further analysis on the key findings of the 2014 annual INREV Investor Intentions Survey, from a research perspective.

Michael Keogh (Senior Investment and Economic Analyst) provides a further analysis on the key findings of the 2014 annual INREV Investor Intentions Survey, from a research perspective.

The results of the annual INREV Investor Intentions Survey, which highlighted growing investor confidence and higher future allocations to real estate globally, were encouraging, but not wholly surprising given relative asset pricing and robust performance projections. As long as there is liquidity in the system, limited demand for credit, questionable earnings growth and a low inflation/interest rate horizon, property pricing can continue to rise as investors hunt for yield. Such is the weight of capital returning to real estate, that domestic and international investors, either frustrated by investor competition, keen pricing, a dearth of stock and an increasing need for yield, should facilitate a much broader valuation upturn in 2014.

But investors need to prepare for tighter monetary policy, which will ultimately shape different markets, sectors and capital flows moving forward. Will rising bond yields spoil the party and hit property values? Well, even by assuming real estate risk premiums tighten in a stronger economy, the scope for further property yield compression across quality assets after 2014 will become increasingly selective. Thankfully, the potential negative impact of rising interest rates on property yields should be more than offset by improved rental prospects, stronger economic sentiment and by the sheer weight of money queuing up for real estate assets. The ability to drive rental tones that will become increasingly important to deliver out-performance. Investors in those countries with lead economic cycles will be willing to take some on asset risk. For lagging economies, however, where sentiment is out-pacing the fundamentals, investors will remain hesitant and risk-averse, driving up prices on safe assets.