The Global Real Estate Index (all performances in euro’s) was almost flat over February and showed a modest decrease year to date of 4.3%. The MSCI World Real Estate index decreased by 6,6% over the last month (ending at March 12th) and showed a performance of –10,8% year to date.
The returns on the MSCI World Real Estate index are less bad than the returns on the MSCI World index which was down year to date with 13,9%, but are not impressive.
After a decade of strong increasing rents and property prices, the real estate sector is still strong and rather healthy. There’s
nothing as regional as real estate. Performances and prospects do differ from country to country, from street to street and from building to building. However, the global economic slow down and less growing or decreasing employment and the current geopolitical situation does affect the whole sector.
According to research conducted by Cushman & Wakefield Healy & Baker office rents in almost all cities worldwide have come down during last year. Although the West End in London still offers the most expensive office space, average rents have decreased last year from EUR 1728 to EUR 1478 per squared meter.
Only in Brussels rents were up during the last year. On average office rents worldwide decreased 7% over 2002.
In France, real estate companies showed a good performance. The main reason for the rise is the fact that tax situation for real estate companies has changed. The companies will be given a tax break as long as they pay out earnings and a part of realized investment gains.
The retail segment is still doing reasonable, although the fact that consumer confidence as well in the US as in many countries in Europe showed a large decline in February awakens fears for a decline of retail rents. Consumer spending is still on a decent level, a further slowdown of the world economy will however seriously affect the retail segment of the property sector as a lot of additional retail space was built during last years.
Valuation for the real estate sector differs strongly form company to company but is not cheap anymore. A dividend yield of on average on real estate investment trusts in the US of 7% seems attractive to the equity investor, but is historically seen certainly not a bargain.
Prospects
The economic climate is not very favorable for the property sector; the demand for new office and retail space is very limited in the current phase of the economic cycle. Profits in the real estate will not fall dramatically, but there’s downside pressure on rents in most geographical areas.
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