Publications

- May 1, 2021: Vol. 15, Number 5

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Three reasons to remain optimistic: Spreads are wide, while complexity and mispricing provide opportunities

by Paul Kennedy

Previously in this column, I have argued that investors should not write off the office sector and that the evolution of the logistics sector creates scope for further capital appreciation. While our positive outlook might seem unduly bullish, we believe three factors underline our optimism.

Yield — it’s all relative

Real estate yields’ spread over government bond yields has seldom been wider. As a result, core real estate currently offers access to bond-like income streams with long duration, high-quality credit, as well as a compelling yield.

Further, the gap between the pricing of core and noncore real estate remains stubbornly high. This allows appropriately skilled investors to arbitrage the gap by “fixing” buildings that no longer meet core requirements.

Uncertainties regarding the pandemic remain, but the vaccine roll-out presents a silver lining. Confidence is growing that a return to some semblance of pre-lockdown life

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