The real estate correction is now over for core assets, according to investment company and asset manager Abrdn, which forecasts residential to “outperform”, along with retail and industrials.
The firm believes the UK is leading the way on a global recovery, buoyed by the result of the general election, which means the country “could now arguably be seen as a bastion of relative calm in a more complex global political environment”.
Abrdn has upgraded its investment view on real estate from underweight to neutral – and is overweight on the residential sector, along with industrials and retail.
Overall, Abrdn expects total returns from UK property to average 8% per annum over the next three years.
While the wider real estate market has focused on “value add” investment, Abrdn believes that “core” (i.e. prime) real estate will deliver the most appealing opportunities. It is forecasting further valuation falls among lower-quality real estate assets, as the cost and time to redevelop weaker properties remains a challenge.
Anne Breen, global head of real estate at Abrdn, said: “We believe that the real estate sector has now mostly repriced following readjustments as the era of cheap debt came to an end.
“As a result, we have now upgraded our house view on real estate to neutral after being underweight for around two years. Essentially, we think it is no longer the time to be underweight to real estate versus other asset classes.
“We believe this real estate cycle is very different to previous ones, as rental income from property has not been challenged in the way it was before. That means the recovery for future-fit buildings should be faster – boosted by lack of high-quality supply.
“However, not all sectors are made equal. We particularly like residential, because of supply-demand imbalances; industrials and logistics – due to the need for modern warehousing to support global and local distribution; and some areas of retail that have benefited from changes to the way we shop since the pandemic.”
