Some Thoughts On Institutional Money Deployment In Real Estate

Very interesting discussions were held during MIPIM (the real estate event for property professionals) last week in Cannes

Current outlook

Some traditional investors have stopped investing in certain areas that have become very expensive, choosing instead to look into selling off some of their property portfolios. (At the same time they are using cash to refinance their debt, as conditions are currently good for doing so). And institutional money continues to be invested in the real estate sector, with investors hoping for stable, long-term returns despite the fact that yields are at a record low. Institutional investors are still racing after core assets that offer stable returns, since there is still a positive risk premium for investing.

The current cocktail is both challenging and unprecedented: banks are starting to apply negative interest rates; ten-year government bond remuneration is dropping below zero in some places (currently Switzerland and Japan) or below 0.5% (e.g. in Germany); and piles of cash are available waiting to be invested. Volatility is back in stock markets and there are uncertainties regarding economic growth in many places, including Europe and Japan. Recessions have deepened in some countries, for example Russia and Brazil. The US economy might be performing pretty well, but China's is slowing down. Other...