Market Insight - 50 Shades of Real Estate by Nicolas Roth

Among all private and illiquid assets, real estate stands on top as the asset class that investors are the most willing to consider for an allocation. There are multiple reasons to this but the fact that real estate is tangible probably explains a lot. Investors can actually see what they are buying, dynamics behind cash flows generated by an office space for example are fairly straightforward to understand. Oddly enough, real estate is often underrepresented in client’s portfolios despite its appealing attributes and the fact that it is investable in many forms and shapes. How to invest in real estate today as rates are set to rise and why Southern Europe is top of the menu as the place to be for investors?

Financial crisis have a history of hitting real estate hard, but also acts as an indicator of how an economy is recovering. The global credit crunch and the European crisis were no exception and real assets in Europe suffered a great deal, especially the infamous PIIGS as they have been dubbed. Institutional investors retrenched from those markets, prices fell across all segments while GDP contracted and unemployment soared. Fast forward a few years, the recession has passed: Spain and Portugal real estate is booming on all segments, with robust demand sustained by a diversity of investors, from western retirees lured by tax incentives, to US hedge funds taking advantage of dislocated prices and forced sellers. The market is now more mature as overseas institutional money came with some standards but the outlook continues to be very strong across all segments as upbeat economic outlook is boosting investor’s confidence.

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