Looking at the performance of global property investments, it really is all about location, location. A recent breakfast seminar in Toronto, hosted by ABN AMRO Asset Management and presented by Nancy Holland, global head of property, examined the past performance of global property and offered an outlook for the future.
The presentation showed that performance has varied significantly over the last few years, depending on the region. For example, Hong Kong had an annualized return of 62.3% for property investments in 2007, but ended January 2008 with a return of -7.7%. The U.K. had an annualized return of -35.5% in 2007, but ended January 2008 at 5.2%. And Canada’s returns were -4.7% in 2007 and -5.7% for January 2008.
Holland identified several recurring themes that will affect global property investments for the remainder of 2008, including globalization, “REITification,” the credit crunch, interest rates and economic uncertainty. She also identified a number of risks, including the possibility of a U.S. recession, the worsening of the credit crunch on a global basis, the corresponding decrease in investor confidence and continued volatility, which will create downsides as well as some “surprise” upsides in the returns.
For North America, Holland predicts returns of 8% to 12% in 2008, most of which will come in the second half of the year. Canada is in a particularly good position—because of the attractive internal drivers in the Canadian economy, she doesn’t believe that property investments will be seriously affected by the problems in the U.S.
The outlook for Europe in 2008 is also positive, and Holland predicts returns of 7% to 10% for this region. But the outlook for Asia-Pacific is more variable, she says, with projected returns varying from -5% to 5%. Resolving the credit crisis will be particularly important to the Asia-Pacific region. “We’ve got to get this credit crisis cleared, and I don’t think it’s done,” she adds.
But on a global basis, it’s essentially a good news story. Holland predicts returns of 8% to 10% for property investments globally, favouring North America and Europe, and warning of potential volatility in the Asia-Pacific region. She advises a continued focus on high-quality companies with strong balance sheets that are able withstand the market volatility, which is expected to persist late into 2008.
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