MIPIM UK: Investors in real estate may have to prepare for a “new norm” of lower returns in the future, according to Alan Patterson, AXA’s head of research and strategy.
“Investors in bonds and equities have come to accept in recent years that returns are going to be lower. Perhaps property investors will have to adjust their expectations too, and get used to an environment where less than 5-6% is an acceptable return. There may come a time when a 3%, 2% or even 1% return will be seen as normal risk premiums for property” he said, speaking at a panel titled ‘A new property cycle: the same again?’
Quantitative easing programmes by the US and UK have seen the massive buy-up of government bonds by central banks, which has boosted demand artificially and pushed yields down. This has propelled more and more investors to look to real estate in an attempt to chase higher returns, which has in turn put pressure on property yields, Patterson said.
The size of central bank balance sheets globally has risen from $3tr before the crisis to around $11bn today.
The number of companies listed on US stock exchanges has also fallen post-crisis which, combined with a slew of share buybacks, has decreased the number of equities available to for investors to buy, he said.
“Whatever the asset class, ultimately we are all competing for a limited number of things to invest in,” he added.
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