Real estate investment trusts have outperformed equities and bonds on an annualised basis over five, ten, 15 and 20 years – but we believe there is more to come.
Although valuations for prime assets in global cities such as London have risen, so too have occupancy levels and rental growth. This is partly down to a pause in new construction during the Global Financial Crisis. As the economy recovers the result has been a bottleneck in supply, especially in the commercial and residential segments. For real estate companies this squeeze on supply means they are able to increase rents – a boon both for their bottom line and for their investors.
Meanwhile, the long-term attractions of investing in listed real estate remain unchanged. The asset class can generate predictable income returns but can also provide an element of inflation protection in line with the ability of companies in the sector to charge higher rents.
Finally, most listed real estate investment trusts are obliged by law to pay out almost all of their taxable profits as dividends. In the current low yield environment, we believe this focus on income should remain a particular draw and herald further capital flows into the asset class.
Alan Supple – CenterSquare, A BNY Mellon company*
*CenterSquare is represented in London by BNY Mellon Investment Management EMEA Limited