In the 14th edition of its Investment Strategy Annual, LaSalle's global strategist, Jacques Gordon said that institutional investors were generally increasing their allocations to real estate, boosting strong economic fundamentals as the market 'is in a position to absorb shocks'.
Report co-author Robin Goodchild, LaSalle’s head of european research and strategy, continued: “There is no doubt that the shutting down of cheap, easy credit will have an effect on real estate markets. But for those who do not rely on financial engineering and carry trades to generate their pro forma returns, the future offers a return to more normal leverage and margin levels that will enable those who truly understand the property markets to prosper.”
However LaSalle believes that risk must be more carefully priced in 2008, as nervous capital markets and inflationary pressures create a more uncertain environment.
Residential real estate has become overheated in many markets around the world and, as this bubble deflates, underlying economies are also put at risk. However, fully leased commercial real estate has defensive characteristics that LaSalle believes will weather a slowdown well.
The firm believes that the best investment opportunities going forward will be in defensive assets for cash-rich buyers who can afford to wait for debt markets to loosen up.
“We do not believe that markets are heading for an early 1990s-style hard landing as there is little risk of over supply; however, the recovery opportunity is not likely to be as compelling as 1993/94 either," continued Goodchild.
"There is no shortage of capital available to invest in real estate, as allocations continue to be increased and funds have unspent equity, so prices are not likely to fall significantly.”
The German and Swedish markets are pinpointed as offering the best prospects in Western Europe because they are still early in their rent cycles
