The lower-for-longer interest rate environment is helping to keep the yield gap between government bonds (see the “10-year government bond yields for select EU countries” chart on page 25) and real estate at high levels and is persuading investors to consider further increasing asset allocation to real assets.

At the same time, fierce competition for prime core real estate across Europe is pushing property prices up and cap rates to record lows. How can real estate investors react effectively to this apparently contradictory investment situation?

Here and now

Monika Sujkowska, analyst, global real estate, at Aviva Investors, does not believe that this situation is contradictory. “Yields are being bid down and property pricing is high in absolute terms, but is attractive relative to other asset classes,” she says.

Sujkowska continues to see value in the sector in Europe due to improving fundamentals, limit