Real Estate – new opportunities

In this month’s newsletter we want to take a look at the real estate market, challenges and opportunities this market is facing.

The economic environment remains fairly positive as growth remains solid and interest rates as well as inflation are rising at a moderate pace. Despite the rise, the interest rate environment remains so low that real estate continues to be a good substitute for bonds as the asset class offers a dividend yield of 3.2%, while the yield of the 10 years bond of the Swiss Confederation fluctuates around zero. Real estate in general is fully valued, but solid security selection still offers potential for good performance.

One well identified challenge within commercial real estate is the transformation of retail space needs. With the significant growth of online commerce, the retail space has lost attractiveness and is expected to continue to do so. To remain successful, location will be key. However, the definition of a good location has changed over time. While a few decades ago city centres were abandoned in favour of shopping malls outside the cities, the trend is reversing, with location to central transport and commuter centres now being much more attractive. Linked to the change in purchasing habits towards online sales, additional logistical centres as well as data centres for IT companies are required, which also creates new opportunities for investors.

Another central theme which is going to impact the real estate market over the years to come is the aging population. A larger segment of elderly people will require a change in housing structure – smaller apartments, apartments adapted to the needs of elderly people and even structures were services are offered for residents who require special care.

Investing in real estate indirectly through a fund, such as the IAM Immo Securities Fund, offers many advantages. First it offers daily liquidity, which allows investors a flexibility which is rare in this asset class. Second is diversification. And third and most important, the fund does not hold direct investments, hence buildings, which allows it to be much more responsive to changes in investment opportunities and themes within the asset class.

Although there are challenges which need to be constantly carefully analysed, we believe that some volatility can offer buying opportunities and we are convinced, that real estate will continue to deliver its strong returns over the long term and remains a solid foundation of a sound asset allocation.