Is trouble brewing for yields beyond 2018?
2018 could be the last year of strong returns for European real estate in a while, if predictions made by Aviva Investors turn out to be correct.
The manager has produced a five-year outlook that forecasts total returns of 6.7 percent across European commercial real estate assets in 2018. Beyond that, however, it estimates that the average annualised return will be much lower until 2022, at about 2.6 percent. Aviva cites a normalisation of yield levels from 2019 as the main reason behind its expectation of lower returns. It adds that slow rental growth will not soften the impact for investors.
UBS Asset Management is in agreement, broadly speaking, pointing out that real estate’s attractive yields continue to draw in institutional allocations. It views 2018 as being a year of stability, but says that interest rate rises will see property’s risk premium narrow somewhat as the year progresses.
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